Mandating Women on Boards: Evidence from the United States

On September 30, 2018, California became the first U.S. state to set quotas for women directors on corporate boards. The passage of this law resulted in a significant decline in shareholder value for firms headquartered in California. The decline in shareholder value is directly related to the number of female directors that firms are required to add under these quotas. We argue that supply-side constraints contribute to the costs imposed by the mandate. The expected costs of the quotas are higher for firms that face a more limited director pool and for those with weak corporate governance. Earnings forecasts for California firms also decline after the passage of the law. The law is associated with a widening of credit default spreads for affected firms, suggesting that differences in risk-taking preferences between male and female directors do not explain the results.