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Manchester Grand Hyatt, Seaport G
American Finance Association
Gender: Policy, Perception and Firm Value
Friday, Jan. 3, 2020 2:30 PM - 4:30 PM (PDT)
- Chair: Heather Tookes, Yale University
As California Goes, so Goes the Nation? Board Gender Quotas and the Legislation of Non-Economic Values
AbstractIn 2018, California became the first U.S. state to introduce a mandatory board gender quota for all firms headquartered in the state. We document negative announcement returns to the adoption of the quota for Californian firms, but also large negative spillover effects on a matched group of non-Californian firms, particularly those located in states that followed California’s legislative lead in the past by raising minimum wages or legalizing cannabis. Frictions on the director labor market only explain a small fraction of value losses of Californian firms. They do not explain the negative spillover effects on firms in other states. We propose shareholders’ fear of further legislation of non-economic values as a new explanation for the negative announcement returns to gender quotas. In line with this view, we find that firms with higher policy sensitivity show the strongest reaction.
AbstractWe examine whether reducing frictions in the labor market affects the performance of private and public firms. Using the staggered adoption of state-level Paid Family Leave acts, we provide causal evidence on the value created by relieving frictions to female talent allocation. The magnitude of firms’ improved performance is correlated with their exposure to the laws. We document that reduced turnover, increased productivity, and female leadership are important mechanisms leading to the observed performance gains.
On the magnification of small biases in decision-making
AbstractWe analyze a setting in which an actor chooses between N ex ante identical options. She can exert effort to learn about the quality of each option, but can ultimately choose only one. Under quite general conditions, optimal effort is asymmetric: a large amount of effort is expended learning about one arbitrarily chosen option, less on another, even less on a third, etc. This implies asymmetric likelihoods of each item being chosen. If the actor has an infinitesimal bias in favor of one option, then the actor selects an effort vector that maximizes the likelihood of her favored option being chosen. Small biases are magnified, sometimes enormously. We also show that a glass ceiling can arise, in which favored types are increasingly prevalent as one ascends the corporate ladder. These results have implications for portfolio selection (e.g., home bias, socially responsible investment funds), hiring (e.g., CEO choice, the glass ceiling), start-up funding, and a variety of other applications. The results also have implications for the optimal design of randomized experiments: different numbers of subjects should be assigned to each treatment. This applies to advertisers running focus groups to decide on an ad campaign or an ending for a movie, or to credit card lenders sending mailers to determine the optimal card to offer.
University of Maryland
London School of Economics
University of Maryland
- G3 - Corporate Finance and Governance