Steven Davidoff Solomon and three coauthors report that:
On September 30, 2018, California became the first U.S. state to introduce a mandatory board gender quota applicable to all firms headquartered in the state. Using a large sample of publicly-listed firms headquartered in the U.S., we find that the introduction of the quota is associated with significantly negative announcement returns to California-headquartered firms. Consistent with the quota imposing frictions, this effect is larger for firms requiring more female directors to comply with the quota. There is also evidence of spillover effects to non-California-headquartered firms. We find evidence in support of two channels through which these spillover effects operate: First, we find spillover effects to be larger for firms operating in industries in which California-headquartered firms lack more female directors to comply with the quota, suggesting that non-California-headquartered firms may lose valuable female directors to California-headquartered firms. Second, we document negative spillover effects for firms headquartered in states dominated by the Democratic Party, consistent with the idea that these firms are more likely to become subject to a board gender quota as well. Finally, we show that, already as of month-end November, female representation on the boards of California-headquartered firms increased. Newly appointed female directors differ significantly in terms of age, independence, and experience from incumbent and leaving female and male directors.
von Meyerinck, Felix and Niessen-Ruenzi, Alexandra and Schmid, Markus and Davidoff Solomon, Steven, As California goes, so goes the nation? The impact of board gender quotas on firm performance and the director labor market (December 19, 2018). Available at SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3303798
One worrisome result is their finding that:
... newly appointed female directors are significantly less likely to possess work experience at another firm in the same two-digit SIC code industry (industry experience), experience as a director of another listed firm, and experience as an outside director of another listed firm than incumbent female and male directors (Panel A). ... These tests provide some evidence that newly appointed female outside directors are more likely to be employed in lower-level executive positions at other firms, for instance, as a Vice President, and are less likely to be employed as top executives at other firms, for example, as an inside director or a CEO, but differences are not statistically significant for all comparisons. Finally, we find some evidence that newly appointed female directors are less likely to qualify as independent outside director when compared to incumbent female and male directors.
Those results suggest that the women being appointed to satisfy the quota are going to be less experienced and bring less expertise to the table.
For instance, Drobetz, Oesch, Schmid, and von Meyerinck (2018) and Hoitash, Hoitash, and Faleye (2018) show that director industry experience is positively related to firm value. Fich (2005) and Fahlenbrach, Low, and Stulz (2010) find that directors simul- taneously serving as CEOs in other firms are associated with higher firm values. Knyazeva, Knyazeva, and Masulis (2013) document similar findings for independent outside directors.
