The Impact of a Principles-Based Approach to Director Gender Diversity

Abstract

We study the impact of a principles-based regulatory approach to female board representation, requiring firms to disclose a gender diversity policy or explain its absence. Post-regulation, firms respond with more female-friendly disclosures. However, those with less access to female directors often justify their lack of diversity. Although the regulation does not mandate increasing female board representation, the fraction of female directors increases by 38% relative to control groups after the regulation. Investors respond to the disclosures, increasingly engaging firms and voting against boards with low female representation. Firms most likely impacted by the regulation exhibit positive abnormal announcement returns.

Keywords: Director Gender Diversity, Comply or Explain Governance, Boards of Directors, Regulation, Disclosure  

JEL Classification: G34, G38, G14, K22, J21