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

Abstract

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.

Does a diverse board matter? A mediation analysis of board racial diversity and firm performance

“…There are several managerial implications from our findings. First, our findings are consistent with recent research by Solal and Snellman (2019) who find that an increase in board gender diversity leads to a decrease in firm value. They interpret this gender effect associated with diverse boards as that women appointees to the board may be viewed by the market as a signal of firms' desire solely to achieve a gender diverse board rather than achieving the most qualified board as a commitment to shareholders.…”

Impacts of supportive HR practices and organisational climate on the attitudes of HR managers towards gender diversity – a mediated model approach

“…Despite the continued growth of women's participation in the global workforce over the last two decades, top management teams (TMTs) are still largely dominated by men, thus evidencing a significant gender imbalanced TMTs across the globe (Pape, 2020; Wu et al , 2019; Sherpered, 2017) and the same composition prevalent in the boards (Solal and Snellman, 2019; Hillman et al , 2007). This vast under-representation of women in the senior leadership roles has received considerable attention from policymakers (OECD, 2015; ILO, 2019), professional think tanks (Catalyst, 2019) and prompted incremental scholarly focus to understand the factors that have been adversely affecting their presence in the TMTs (Glass and Cook, 2016; Roberson et al , 2017).…”

Investigating when religious culture increases trade credit: A signaling theory approach

“…These signals may alter the beliefs of receivers by reducing their uncertainty in making decisions regarding a set of choices, especially when market information is incomplete (Kirmani & Rao, 2000). A burgeoning body of literature on signaling theory has investigated the role of many signals, such as firms’ relationship networks, reputation, announcements, social responsibility, and board composition, in influencing management decisions and stock market responses (Bergh & Gibbons, 2011; Park & Patel, 2015; Solal & Snellman, 2019; Zhang et al, 2020).…”

“…In the context of searching for information, in addition to firm‐level features (Drover et al., 2018; Solal & Snellman, 2019; Zhang et al., 2020), the location of a firm’s headquarters is an informative signal (Hasan & Habib, 2019). As discussed earlier, the religious culture that shapes the atmosphere of a firm engenders its ethical preferences.…”