Women Don’t Mean Business? Gender Penalty in Board Composition

We examine investor responses to board diversity and highlight a previously unexplored mechanism to explain negative market reactions to senior female appointments. Drawing on signaling theory, we propose that an increase in board diversity leads investors to update their beliefs about firm preferen...

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Bibliographic Details
Published in:Organization science (Providence, R.I.) R.I.), 2019-11, Vol.30 (6), p.1270-1288
Main Authors: Solal, Isabelle, Snellman, Kaisa
Format: Article
Language:English
Subjects:
Boards of directors
Companies
corporate boards
Cues
diversity
Females
financial markets
Frame analysis
Gender
Investors
market signals
Market value
Panel data
Preferences
shareholder value
social performance
Women
Workplace diversity
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Summary:We examine investor responses to board diversity and highlight a previously unexplored mechanism to explain negative market reactions to senior female appointments. Drawing on signaling theory, we propose that an increase in board diversity leads investors to update their beliefs about firm preferences. Specifically, we argue that a gender-diverse board is interpreted as revealing a preference for diversity and a weaker commitment to shareholder value. Consequently, firms with more female directors will be penalized. We test our argument using 14 years of panel data on U.S. public firms. We find that firms that increase board diversity suffer a decrease in market value and that this effect is amplified for firms that have received higher ratings for their diversity practices across the organization. These results suggest that observers respond to the presence of female leaders not simply on their own merit but as broader cues of firm preferences and that firms may counteract any potential signaling effect through careful framing.
ISSN:1047-7039
1526-5455
DOI:10.1287/orsc.2019.1301