Mandatory gender balance and board independence

Abstract

We find that forcing radical gender balance on corporate boards is associated with increased board independence and reduced firm value. A mandatory 40-percent gender quota shifts the average fraction of independent directors from 46 to 67 percent because female directors are much more often independent directors than males are. This shock to board independence via gender quotas is strongest in small, young, profitable, non-listed firms with powerful stockholders and few female directors. Such firms also lose the most value, presumably because they need advice from dependent directors the most and monitoring by independent directors the least.