Boardroom Racial (In)Equality and Stock Returns: Evidence from the Black Lives Matter Protests

Abstract

We study a cross-section of stock price reactions to the Black Lives Matter (BLM) protests that followed the killing of George Floyd on May 25, 2020. We find that companies with higher representation of black directors on the corporate board are associated with higher stock returns during the mass BLM protests. This exogenous shock (BLM protests) provides an opportunity to evaluate the relationship between boardroom racial diversity and firm value. Using a sample of S&P 500 index companies, we find that before the killing of George Floyd black directors held on average 8.2% of the board seats, with each black director holding on average 1.34 board seats, which is significantly higher than for directors of other ethnic origins. Within one year after the mass BLM protests, the proportion of board seats held by black directors increased to 9.6%, and 31% of the newly appointed directors were black. We find that companies typically add new diverse directors by increasing the board size. Additionally, we show evidence that boards are paying more attention to racial diversity issues in the aftermath of the BLM protests, and only a low correlation exists between talking about racial diversity in proxy statements and actual racial diversity in the boardroom.