Why Investors React Negatively to Companies That Put Women on Their Boards

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'It is not because companies perform worse after they appoint female directors.'

Research has found little to no evidence supporting the idea that companies with female board directors perform better than companies run by all-male boards. A recent study, of board composition and financial data on 1,644 public companies in the United States between 1998 and 2011, finds that companies that appoint women to the board are no more profitable than those that do not. Nor are they any less profitable, for that matter.

Another explanation is that investors react to what they perceive to be a change in firm preferences. Increases in board diversity may signal to investors that the firm is motivated by social goals and cares less about maximizing shareholder value. And to the extent investors care about shareholder value, they will penalize those companies they suspect are putting other goals first.

We showed them a press release of a fictional company, announcing the appointment of Jack Smith or Marilyn Clark as a new member of the board. Besides the name of the director, the press releases were identical. We then gave the participants a list of 10 corporate goals and asked them how much they thought the company cared about each of them. We also asked them to evaluate the competence of the new board member.

 

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