As California Goes, So Goes the Nation? Board Gender Quotas and Shareholders' Distaste of Government Interventions
99 Pages Posted: 3 Jan 2019 Last revised: 17 Nov 2024
Date Written: October 23, 2024
Abstract
In 2018, California set a precedent by enacting a mandatory gender quota for corporate boards, only to become the first state to repeal it in 2022. Our analysis reveals significant variation in the stock market responses of California firms to both the implementation and subsequent repeal of the board gender quota as well as significant spillover effects for non-California firms. Our results show that director labor market frictions are not the only driver of these stock market reactions. Instead, two novel factors emerge as key drivers: the sensitivity of firms to policy changes and their orientation towards Environmental, Social, and Governance (ESG) principles. Specifically, firms sensitive to policy changes reacted negatively to the quota's introduction and positively to its repeal, reflecting their regulatory uncertainty aversion. In contrast, firms with strong ESG commitments showed the opposite response, indicating that these firms value gender diversity on boards beyond compliance with legal mandates. These findings underline the importance of considering broader regulatory and corporate governance factors in understanding stock market responses to gender quotas.
Keywords: Gender quota, Regulatory uncertainty, Director labor markets
JEL Classification: J16, J24, G38, K38
Suggested Citation: Suggested Citation