A new study by Dittmar and Ross School colleague Kenneth Ahern, assistant professor of finance, analyzes the impact of a 2003 Norwegian law requiring all public-limited firms to have at least 40 percent representation of women on their boards of directors by 2005. At the time, only 9 percent of board seats in Norway were held by women. After voluntary compliance failed, the law became effective Jan. 1, 2006, with a two-year transition period. Firms that did not comply by January 2008 would be forced to dissolve.-from here, study here
Using a panel of 130 publicly listed Norwegian firms from 2001 to 2007, the researchers found a negative impact of the mandated board changes on firm value—a result that may be applicable to the United States and Britain since Norway's system of governance is similar.
[...]Dittmar and Ahern found that the stock price of an average firm dropped 2.6 percent in the three days following the first announcement of the new law and 5 percent for firms that had no women on their boards at the time of the February 2002 announcement.
The researchers also used a common market-based measure of corporate governance to determine firm value: Tobin's Q, a ratio of a company's market capitalization to the replacement cost of its assets (the sum of total assets and market equity less common equity divided by total assets).
They found that when a firm experienced at least a 10-percent increase in the proportion of women on its board, Tobin's Q dropped 18 percent.
"The negative effect of the regime shift supports the hypothesis that board structure affects value," Ahern says. "Firms that were required to make the most drastic change to their boards also suffered the largest negative returns. Our results indicate that boards do matter and that constraining the selection of board members has a large negative impact on value."
Dittmar and Ahern are quick to point out, however, that a loss in firm value was not caused by the gender of the new board members, but rather by their young age and lack of high-level work experience. In fact, gender effect is not significant once you account for these other experience-related differences, they say.
"The constraint imposed by the 40-percent women quota led firms to recruit women board members that were younger and had different career experiences than the existing directors," Dittmar says. "It is reasonable to suggest that these changes led to decreases in firm value because new directors did not have the same monitoring or advising capabilities of the other directors before the imposed change.
"When firms were free to choose directors before the rule, they tended to choose women that were similar to men directors. This is consistent with the idea that the large demand and small supply for women directors after the adoption of the 40-percent quota forced firms to choose directors that they would not have chosen otherwise."
Unfortunately, there is no consensus on the critical question of whether board diversity improves firm performance. Whereas some studies find evidence consistent with the theory that board diversity positively affects firm performance, others find no support or even contradictory evidence.
[...]More successful firms could have greater resources to dedicate to the pursuit of board diversity. Or more successful firms could be under greater public scrutiny and pressure to diversify their boards. Or female and minority directors could be scarce commodities who can choose to serve only on the boards of more successful firms.
Study cited in there:
Over the last generation, the concept of diversity has become commonplace and taken-for-granted in discourses ranging from law to education to business. In higher education, for example, it is hard to imagine a faculty job search or a student admissions discussion that was not heavily laden with talk of diversity, in the sense of the representative inclusion of women and racial and ethnic minorities in a group or organization. In this paper we present the results of an interview-based study of the discourse of diversity in a particular business setting: the corporate boardroom. Our principal observation is that - thirty-one years after the Supreme Court's Bakke decision introduced the term into public discourse - corporate insiders appear not to have arrived at a master narrative to explain the pursuit of diversity on boards of directors. Instead, their accounts stress a variety of factors and feature few concrete examples.