Women Don’t Mean Business? Gender Penalty in Board Composition

INSEAD Working Paper No. 2019/20/OBH

Forthcoming in Organization Science

54 Pages Posted: 30 Jul 2015 Last revised: 26 Apr 2019

See all articles by Isabelle Solal

Isabelle Solal

ESSEC Business School

Kaisa Snellman

INSEAD - Organisational Behavior

Date Written: April 24, 2019


We examine investor responses to board diversity and highlight a previously unexplored mechanism to explain negative market reactions to senior female appointments. Drawing on signaling theory, we propose that an increase in board diversity leads investors to update their beliefs about firm preferences. Specifically, we argue that a gender-diverse board is interpreted as revealing a preference for diversity, and a weaker commitment to shareholder value. Consequently, firms with more female directors will be penalized. We test our argument using 14 years of panel data on U.S. public firms. We find that firms that increase board diversity suffer a decrease in market value, and that this effect is amplified for firms that have received higher ratings for their diversity practices across the organization. These results suggest that observers respond to the presence of female leaders not simply on their own merit, but as broader cues of firm preferences, and that firms may counteract any potential signaling effect through careful framing.

Keywords: Diversity, Gender, Corporate Boards, Financial Markets, Shareholder Value, Social Performance, Market Signals

Suggested Citation

Solal, Isabelle and Snellman, Kaisa, Women Don’t Mean Business? Gender Penalty in Board Composition (April 24, 2019). INSEAD Working Paper No. 2019/20/OBH, Forthcoming in Organization Science, Available at SSRN: https://ssrn.com/abstract=2637433 or http://dx.doi.org/10.2139/ssrn.2637433

Isabelle Solal

ESSEC Business School ( email )

1 Avenue Bernard Hirsch
Cergy, 50105

Kaisa Snellman (Contact Author)

INSEAD - Organisational Behavior ( email )

Boulevard de Constance
Fontainebleau 77305

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