DP11176 Does gender-balancing the board reduce firm value?

Author(s): B Espen Eckbo, Knut Nygaard, Karin S Thorburn
Publication Date: March 2016
Keyword(s): ;ong-run performance, busy directors, corporate conversion, director independence, director network power, Gender quota, long-run performance, valuation effect
JEL(s): G34, G35
Programme Areas: Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=11176

A board gender quota reduces firm value if it forces the appointment of under-qualified female directors. We examine this costly constraint hypothesis using the natural experiment created by Norway's 2005 board gender-quota law. This law drove the average fraction of female directors from 5% in 2001 to 40% by 2008, producing a large exogenous shock to director experience and independence. However, statistically robust analyses of quota-induced shareholder announcement returns, and of long-run stock and accounting performance, fail to reject the hypothesis of a zero valuation effect of this shock to board composition. Moreover, firms did not expand board size, nor is there significant evidence of quota-induced corporate conversions to a (non-public) legal form exempted from the quota law. Finally, our evidence on female director turnover and a novel network-based measure of director gender-power gap also fails to suggest that qualified female directors were in short supply.