The authors examine the impact of mandated female board representation on firm valuation using a natural experiment in Norway. They find that the law requiring at least 40% female representation led to: 1) A 3.52% decline in stock prices for firms with no female directors prior to the law. 2) A 12.4% decline in Tobin's Q from the average firm value following a 10% increase in female representation. 3) Significant changes to board composition, with new female directors having less experience but more education than retained male directors.

1. THE CHANGING OF THE BOARDS: THE IMPACT ON
FIRM VALUATION OF MANDATED FEMALE BOARD
REPRESENTATION:
KENNETH R. AHERN AND AMY K. DITTMAR
In this paper, the authors present new evidence on the relationship between firm value and
board characteristics by exploiting a natural experiment in Norway in board structure created
by an unprecedented exogenous change to corporate boards in order to identify the impact of
corporate boards on firm value. Indeed, the Norwegian Parliament passed a law in December
2003 with reference to Ot.prp. nr.97 (2002-2003), stating that privately owned public limited
companies will be given rules to elect a board where there should be a minimum number of
both sexes in the board, approximately 40 percent. This rule was to be implemented if public
companies did not comply within two years. By July 2005, only 68 of 519 companies fulfilled
the requirements of the rules.
Therefore, they try to know whether the new board structure resulting to the law will increase
or decrese firm values.Thus the following hypotheses are examined:
H1: if firms choose their board structures to maximize firm value, imposing binding legal
constraints on their choices will lead to declines in values
H2: the new law may lead to increases in value if firms choose their board structures to
maximize the private benefits of management (“captured boards” hypothesis)
H3: the diversity enforced by the law change itself would increase firm value.
They use the pre-quota cross-sectional variation in female board representation as an
exogenous instrument for the variation in board changes mandated by the quota in order to
assess the effect of the quota on firm value. The sample of firm which they analyze holds in
248 publicly listed Norwegian firms from 2001 to 2009. Their results show that the mandated
board changes on firm value has a huge negative impact. The event study they’ve done on the
stock price reaction to the initial announcement of the quota shed the light on the fact that the
average industry-adjusted stock return for firms with no female directors was −3.54%, while
it was −0.02% for firms with at least one female director, on the days around the
announcement. The difference is economically and statistically significant at a level of 3.52%.
1

2. Moreover, another important aspect which rises on the study is the fact a forced 10 percent
increase of women representation on the board led to a 12.4 percent decline in Tobin’s Q from
the average. So, the quota caused a substantially large negative effect on industry-adjusted
Tobin’s Q1
.
The results suggest that the constraint imposed by the law had a large negative effect on firm
value, commensurate with the massive reorganization of corporate boards imposed by the
gender quota.
In addition, they show that the limited pool of new female directors led multiple
characteristics of boards to change as a result of the quota. They find that the women who
occupied the job of CEO before are not numerous at the time when firms needed women on
their boards. Moreover, new female directors had significantly less CEO experience and were
younger, more highly educated, and more likely to be employed as a non-executive manager,
compared to retained male directors. If we make a comparison, we find in the results of the
univariate test that only 31.2 percent of new female directors had prior CEO experience
against 69.4 percent of retained male directors.
Using the pre-quota variation in female directors as an instrument show that, consistent with
the value loss, the quota led firms to take on more debt, make more and underperforming
acquisitions, and grow in absolute size, while the size of the board remained constant. They
also find by the imposition of the quota that operating performance decreased and costs
increased.
Using aggregate statistics on the form of legal organizations in Norway, they find that the
number of public limited firms in Norway in 2009 is less than 70 percent of the number in
2001. But in the other side, the number of private limited firms, not affected by the imposition
of the quota, increases by over 30 percent.
1
A ratio devised by James Tobin of Yale University, Nobel laureate in economics, who
hypothesized that the combined market value of all the companies on the stock market
should be about equal to their replacement costs. The Q ratio is calculated as the market
value of a company divided by the replacement value of the firm's assets.
Cf.investopedia
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3. A Stakeholder Identity Orientation Approach to
Corporate Social Performance in Family Firms
John B. Bingham; W. Gibb Dyer Jr.; Isaac Smith; Gregory L. Adams.
This paper aims to examine differences in corporate social performance (CSP) activity
between family and nonfamily firms. More specifically, the main objective of this paper is to
examine whether family firms, vis-à-vis nonfamily firms, benefit specific stakeholders and
how the level of family and founder involvement in family firms induces CSP activity.
Therefore, in order to explain differences in the extent to which a family is connected with a
firm and the firm’s CSP, the authors have used identity orientation logic. Indeed, the method
they use to shed the light certain firm characteristics and behaviors based on how
organizations view and interact with their constituencies is innovative by the fact that, it
extends beyond, treatments of stakeholder theory or philosophical. More specifically this tool
allows them to reinforce the nomological network of descriptive stakeholder research and
organizational identity theory.
As far as they are concerned, the particular identity orientation that family firms adopt may
explain their approach to stakeholder management in their CSP activities. Therefore, they use
this argumentation as the basis for a set of testable hypotheses about the CSP activities of
family firms versus nonfamily firms.
Thesis 1: family firms are less likely to maximize their own welfare at the expense of
stakeholders and will engage in more CSP activity than nonfamily firms.
Thesis 2: family firms will benefit specific stakeholder beneficiaries.
Indeed, for the first thesis, they argue that cetiris paribus, nonfamily firms are more
likely than family firms to adopt an individualistic identity orientation. Compared to
nonfamily firms, for instance, family firms have a particular incentive to take a long-term
perspective and perpetuate their business for future generations consistent to the prior findings
(Gallo and Vilaseca, 1996; McConaughy and Phillips, 1999). Therefore, family firms are
likely to engage in higher levels of CSP by the fact that they will take a less individualistic
view of stakeholder relationships than nonfamily firms.
Hypothesis 1: Family firms will demonstrate significantly more positive CSP social initiatives
toward stakeholders than will nonfamily firms.
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4. Hypothesis 2: Family firms will demonstrate significantly fewer CSP social concerns toward
takeholders than will nonfamily firms.
In respect to the second thesis they adopt identity orientation logic to describe the
manner that stakeholders, who benefit from CSP activity, might differ between family and
nonfamily firms.
In this way the main idea is that relationally oriented firms will manage their internal
and external stakeholder relationships similarly, based on a consistent set of goals, standards,
and accepted codes of conduct for all stakeholders whose welfare the firm seeks to improve.
In addition, consistent to relational orientation logic, family firms would likely take a more
proactive stance toward the development of higher quality and safer products for consumers,
than would nonfamily firms. Moreover, by the fact that family firms narrow their focus to
specific stakeholder groups who are more consistent with the characteristics of the firm,
causing or allowing harm to employee, consumer, or community stakeholders is also less
likely to occur.
Therefore, another hypothesis rises:
Hypothesis 3: Family firms will demonstrate more employee, consumer, and community
social initiatives than nonfamily firms.
Here they examine more closely the way family firms exhibit socially responsible
behavior to benefit stakeholder groups. In other words, they integrate the role of family
involvement and adopt a more nuanced view of why family involvement matters.
The main finding of hypothesis 3 is that greater family involvement in a family firm
will likely be positively related to a firm’s support for the community, its employees, and the
providing of quality products to consumers. Consistent with that logic, they hypothesize the
following:
Hypothesis 4: The greater a family firm’s family involvement, the higher the number of
community, employee, and consumer social initiatives (and fewer of the respective concerns)
will be.
Hypothesis 5: The greater the involvement of the founder in a family firm, the higher the
number of community, employee, and consumer social initiatives (and fewer of the respective
concerns) there will be.
They empirically examine examine their hypotheses in the S&P 500 during the period of
1991–2005. Then, they operationalized their dependent variable of CSP using the social
responsibility category ratings from the Kinder, Lydenberg, and Domini (KLD) social
performance database.
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5. Concerning their results, they found for hypothesis 1 and 2 that, family firms are significantly
related to higher total social initiatives. Thereby the first hypothesis was confirmed but not
hypothesis 2. Regarding Hypothesis 3, it was partially supported that family firms would
demonstrate greater specific initiatives and fewer of the respective concerns than nonfamily
firms. In addition Hypothesis 4 follows the same tandancy than Hypothesis 3 because it is
partially supported by the results. In fact for this hypothesis greater family involvement would
be correlated with a higher number of social initiatives and a fewer number of the respective
concerns. At last, we found limited support for Hypothesis 5 (i.e., for product concerns) that
greater founder involvement in a family firm would be associated with a higher number of
social initiatives and a fewer number of the respective concerns.
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6. Concerning their results, they found for hypothesis 1 and 2 that, family firms are significantly
related to higher total social initiatives. Thereby the first hypothesis was confirmed but not
hypothesis 2. Regarding Hypothesis 3, it was partially supported that family firms would
demonstrate greater specific initiatives and fewer of the respective concerns than nonfamily
firms. In addition Hypothesis 4 follows the same tandancy than Hypothesis 3 because it is
partially supported by the results. In fact for this hypothesis greater family involvement would
be correlated with a higher number of social initiatives and a fewer number of the respective
concerns. At last, we found limited support for Hypothesis 5 (i.e., for product concerns) that
greater founder involvement in a family firm would be associated with a higher number of
social initiatives and a fewer number of the respective concerns.
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