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

See all articles by Felix von Meyerinck

Felix von Meyerinck

University of Zurich - Department of Finance

Alexandra Niessen-Ruenzi

University of Mannheim, Department of Finance; University of Mannheim - Department of Finance

Markus Schmid

University of St. Gallen - Swiss Institute of Banking and Finance; University of St. Gallen - School of Finance; Swiss Finance Institute; European Corporate Governance Institute (ECGI)

Steven Davidoff Solomon

University of California, Berkeley - School of Law; European Corporate Governance Institute (ECGI)

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

von Meyerinck, Felix and Niessen-Ruenzi, Alexandra and Niessen-Ruenzi, Alexandra and Schmid, Markus and Davidoff Solomon, Steven, As California Goes, So Goes the Nation? Board Gender Quotas and Shareholders' Distaste of Government Interventions (October 23, 2024). European Corporate Governance Institute – Finance Working Paper No. 785/2021, Available at SSRN: https://ssrn.com/abstract=3303798 or http://dx.doi.org/10.2139/ssrn.3303798

Felix Von Meyerinck

University of Zurich - Department of Finance ( email )

Plattenstr 32
Zurich, 8032
Switzerland

Alexandra Niessen-Ruenzi

University of Mannheim - Department of Finance ( email )

Mannheim, 68131
Germany

University of Mannheim, Department of Finance ( email )

L9, 1-2
Mannheim, 68131
Germany
+49 621 181 1595 (Phone)

Markus Schmid (Contact Author)

University of St. Gallen - Swiss Institute of Banking and Finance ( email )

Unterer Graben 21
St. Gallen, 9000
Switzerland

University of St. Gallen - School of Finance ( email )

Unterer Graben 21
St.Gallen, CH-9000
Switzerland

Swiss Finance Institute

c/o University of St. Gallen
Dufourstrassse 50
St. Gallen, SG 9000
Switzerland

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Steven Davidoff Solomon

University of California, Berkeley - School of Law ( email )

215 Law Building
Berkeley, CA 94720-7200
United States

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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