As California Goes, So Goes the Nation? The Impact of Board Gender Quotas on Firm Performance and the Director Labor Market

Abstract

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.