Does Mandatory Board Gender-Balancing Reduce Firm Value?

Abstract

Mandated board gender-balancing is a social-policy instrument, which in principle is unrelated to concerns about firms' economic performance. Nonetheless, imposing such a policy may have unintended consequences (positive or negative) for firm value, which is important for all of the firm's constituencies - not only shareholders. In this paper, we highlight and extend our recent research on the economic effects of Norway's pioneering gender-quota law, which forced board gender balancing of all domestic public limited corporations by early 2008. This research subsumes and econometrically corrects controversial conclusions of extant studies. Most important, our research shows that quota-induced changes in market valuations and operating performance were both economically and statistically negligible. Furthermore, we show that corporate conversions to a legal form that prevents the firm from raising public equity capital---but does not require gender-balancing - were unrelated to the company's pre-quota female director shortfall. We also present new evidence that boards managed to preserve directors' large-firm CEO experience, without increasing director busyness. We conclude that the supply of qualified female director candidates was sufficiently large to avoid board concentration and negative economic effects of the quota restriction.

Keywords: Gender quota; board diversity; valuation effect; return correlation; long-run performance, operating performance, legal conversion

JEL Classification: G14, G34