Boardroom Racial (In)Equality and Stock Returns: Evidence from the Black Lives Matter Protests

51 Pages Posted: 28 Sep 2021

See all articles by Maksims Dzabarovs

Maksims Dzabarovs

affiliation not provided to SSRN

Romans Madesovs

Stockholm School of Economics, Riga

Anete Pajuste

Stockholm School of Economics, Riga; European Gorporate Governance Institute (ECGI)

Date Written: September 20, 2021

Abstract

We study a cross-section of stock price reactions to the Black Lives Matter (BLM) protests that followed the killing of George Floyd on May 25, 2020. We find that companies with higher representation of black directors on the corporate board are associated with higher stock returns during the mass BLM protests. This exogenous shock (BLM protests) provides an opportunity to evaluate the relationship between boardroom racial diversity and firm value. Using a sample of S&P 500 index companies, we find that before the killing of George Floyd black directors held on average 8.2% of the board seats, with each black director holding on average 1.34 board seats, which is significantly higher than for directors of other ethnic origins. Within one year after the mass BLM protests, the proportion of board seats held by black directors increased to 9.6%, and 31% of the newly appointed directors were black. We find that companies typically add new diverse directors by increasing the board size. Additionally, we show evidence that boards are paying more attention to racial diversity issues in the aftermath of the BLM protests, and only a low correlation exists between talking about racial diversity in proxy statements and actual racial diversity in the boardroom.

Keywords: Boardroom diversity, corporate governance, mass protests, Environmental, Social and Governance (ESG)

JEL Classification: G12, G14, G30

Suggested Citation

Dzabarovs, Maksims and Madesovs, Romans and Pajuste, Anete, Boardroom Racial (In)Equality and Stock Returns: Evidence from the Black Lives Matter Protests (September 20, 2021). European Corporate Governance Institute – Finance Working Paper No. 789/2021, Available at SSRN: https://ssrn.com/abstract=3931332 or http://dx.doi.org/10.2139/ssrn.3931332

Maksims Dzabarovs

affiliation not provided to SSRN

Romans Madesovs

Stockholm School of Economics, Riga ( email )

Strelnieku iela 4a
Riga, LV 1010
Latvia

Anete Pajuste (Contact Author)

Stockholm School of Economics, Riga ( email )

Strelnieku iela 4a
Riga, LV 1010
Latvia

European Gorporate Governance Institute (ECGI) ( email )

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

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