Finance Questions, Answered: Does Board Gender Balancing Affect Firm Value?


Bjorn Espen Eckbo (top)
Tuck Centennial Professor of Finance

Karin Thorburn (bottom)
Visiting Professor of Finance (from the Norwegian School of Economics)

On August 8 of 2022, diversity at the top of the corporate ladder took a giant step into the spotlight. That’s the day all 3,300-plus companies listed on the Nasdaq stock exchange were required to publicly disclose their board-level diversity statistics using a standardized template. That day also began a mandatory timeline for Nasdaq companies, requiring them to have at least one diverse director by 2023, and at least two diverse directors by 2025 (for Global Select or Global Market firms) or 2026 (for Capital Market firms)—or explain why they chose not to meet this standard.

The Nasdaq is the first U.S.-based stock exchange to have a board diversity requirement (where diversity means directors who self-identify as female, an underrepresented minority, or LGBTQ+), but it’s the latest in a long list of board-diversity requirements that began with the passage of a law on this issue in Norway in 2003. Nine other countries in the European Union followed Norway’s lead, as did California in 2018. California’s law, which is currently on appeal after being ruled unconstitutional by the Superior Court of California, requires listed companies with their principal executive offices located in California to have some female directors.

Following Norway’s pioneering law, which requires 40% of directors to be from each gender, many observers wondered what its impact would be on the value of the affected corporations. With the help of the Lindenauer Forum on Corporate Governance at Tuck, professors Espen Eckbo and Karin Thorburn have been studying that precise question. Their published research has anchored the debate by showing that Norway’s board diversity requirement did not have a statistically significant impact on firm value. This important finding is referenced by both Nasdaq and the U.S. Securities and Exchange Commission (SEC) when making the case for—and SEC approving—Nasdaq’s diversity requirement. 

“As financial economists, Karin and I are not in the business of advocating social policy,” Eckbo says. “Rather than arguing for or against a board gender quota, we use the Norwegian experiment to laser-focus on whether or not such a quota is likely to affect firm value. The correct answer is ‘no.’ This answer is important to all of the firm’s constituencies—not only its shareholders—as well as to policymakers who are concerned with potentially negative valuation consequences of regulating board structures.”

What explains this finding? “Many seem to have undervalued the quality of potential female directors,” Eckbo says. “In the case of Norway, the new female directors were, in fact, better educated than their male counterparts and with broad professional experiences, except that few have been chief executive officers. However, boards easily satisfied their need for CEO experience by retaining the male directors with this background and replacing less experienced males with females.” 

This article was originally published in print in Tuck Today magazine.

Read more “Finance Questions, Answered”