Study Finds That Adding Women to Corporate Boards Leads to a Decline in Market Value

A new study by two women scholars at the INSEAD business school in Fontainebleau, France, finds that when corporations put a woman on their board of directors, they tend to show a decline in market value over the next two years.

The authors examined appointments to the board of directors of 1,600 corporations in the United States over a 14-year time period. They found that companies that placed a woman on their board of directors had a market share decline greater on average than firms that did not place a woman on their boards. Every increase in the number of female directors led to an average 2.3 percent loss of market value. Additionally, the authors found that the effect is amplified for firms that have received higher ratings for their diversity practices across the organization.

The authors state  “that the market’s response to board diversity is determined by its perception of what motivates the firm to choose a gender-diverse board. Specifically, we posit that board diversity affects firm value because investors assume that the presence of female directors is more likely to be driven by a desire to increase diversity than by a desire to maximize returns to shareholders.”

The full study, “Women Don’t Mean Business? Gender Penalty in Board Composition,” was published on the website of the journal Organizational Science. It may be accessed here.