Study Finds Investors Punish Firms That Add Female Board Members

Chris Gaetano
Published Date:
Nov 25, 2019

A study of 14 years of market returns across about 1,889 companies has found that when a firm added a female board member, shareholders tended to react skeptically, as market value dropped by about 2.3 percent over two years, according to Bloomberg. This devaluation came despite no material changes in the company's return on assets, suggesting that the effect was more about perception.

In order to examine why people's perceptions changed, the researchers, from INSEAD business school, conducted an experiment in which people read a press release announcing a new board member; in some, the new board member was male and in others it was female. Participants said that firms that hired a man as a new director were more concerned about profits, while those that took on a woman were more concerned about social values and were overall considered "softer." 

Kaisa Snellman, one of the co-authors of the paper, said that while the negative reaction is likely due to bias, she believes the same is true of positive bias as well: After reviewing 140 papers on the subject, she thought that none of them showed a clear relationship between diversity and improved performance metrics of any kind. At the same time, while she said the business case for diversity is not strong, this does not cancel out all the other reasons to have a diverse workforce. The research was published in the journal Organization Science.

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