PROGRESS ACTION GRANTS
European Commission- DG Justice
Women Mean Business and Economic
Growth— Promoting Gender Balance on
Company Boards
DEPARTMENT FOR EQUAL OPPORTUNITIES-PRESIDENCY OF COUNCIL OF
MINISTERS
in partnership with
DONDENA RESEARCH CENTER ON SOCIAL DYNAMICS, UNIVERSITA’ BOCCONI
WP 4. Analysis of the impact of the Italian law requiring gender-balanced
representation on boards of publicly-listed and state-owned companies
(ENGLISH VERSION)
1. Board gender quotas: literature review …………………………………………………2
2. The economic effects of the Italian law on board gender quotas:
Empirical analysis…………………………………………………………………………..11
1
1. Board gender quotas: literature review
The relationship between female representation and firms’ performance represents a
crucial issue in the debate on the effects of board gender quotas. The evidence on this
relationship is mixed. It does not really support a business case for gender quotas, nor it
provides a case against their introduction (Ferreira, 2014, Carter, 2010). However,
proponents of board gender balance regulations often make a “business case” for female
board representation (Ferreira, 2014). Several studies suggest the existence of a positive
relationship between female representation and performance (Carter et al., 2003, Isidro
and Sobral, 2013, Torchia et al., 2011, Campbell and Minguez-Vera, 2008). This is used
as a major justification for the introduction of gender quotas for female representation on
corporate boards. However, the evidence on the effects of female representation on
performance is not conclusive, and many studies find that gender diversity on the board
has either a negligible or a negative effect on firm performance (Adams and Ferreira,
2009, Bohren and Strom, 2010, Carter et al., 2010). Moreover, it is not straightforward to
infer causal relationships between female representation and firms’ performance from
correlation analyses, which typically carry the risk that unobserved factors drive the overall
results. In this context, recent empirical research on the impact of the Norwegian law has
provided a first opportunity to carefully take into account issues of endogeneity (is it the
presence of women in boards that delivers better outcomes or are better performing firms
appointing more women on the board?) and thus identify causal effects on firm
performance (Profeta et al. 2014).
This work aims at briefly reviewing the existing empirical work on board gender quotas.
Most of the literature on gender quotas analyzes the Norwegian gender quota law, as
Norway was a precursor in the introduction of quotas. We will first present a few crucial
issues that must be carefully taken into account when discussing evidence on the
2
Norwegian quota. We then present the existing evidence on the economic effects of
quotas, and discuss the main findings of the empirical work that looks at the effects of
quotas on firm performance as well as labor market outcomes. It will emerge how despite
the growing literature on the topic the evidence on board gender quotas is still not
conclusive. Further evidence on other countries that have recently implemented board
quota laws will allow cross-national comparisons and contribute to the challenging task of
assessing the relation between board gender quotas, corporate and economic outcomes.
The Norwegian case
Several difficulties are common to all studies that use the Norwegian quota as a natural
experiment to identify the effect of female directors on performance and profits. In a recent
commentary, Ferreira (2014) carefully explains the caveats that must be considered when
discussing the studies that use the Norwegian law as a natural experiment for the
introduction of board gender quotas. First, there seem to be too much freedom in defining
the timing of the natural experiment. Ahern and Dittmar (2012) and Nygaard (2011), for
example, look at two different dates, finding different results. Given that the “event window”
is wide (2003-2008), there is a multitude of confounding effects (Ferreira, 2014). For
instance, Norway adopted the IFRS accounting rules in 2005 and implemented the
Norwegian Code of Practice in the same year. Another issue is represented by the choice
of the “control group”, namely a group of firms that have not experienced the quota law
and that can be compared to the “treated” ones, i.e. those which have experienced the
quota law. The comparison between the outcomes in the treated and control groups
delivers the results on the impact of the law. Ferreira (2014) argues that since the quota
law applies to all listed Norwegian firms there is no natural control group to which they can
be compared; this issue, moreover, is made even more serious by the fact that firms can
self-select into treatment by deciding whether to switch to a legal form that is not subject to
3
the quota.
Besides their effects on firm performance and other outcomes, gender quotas have been
proved to be the most effective measure to narrow the gender gap on corporate boards
(European Parliament, 2012). It is difficult to expect a natural increase of women in top
positions without such an explicit constraint (Profeta et al., 2014). The Norwegian quota
law has proved to be effective at increasing the number of women on corporate boards:
the percentage of women directors was 6% in 2002 and reached 40% in 2009. Belinky, et
al. (2013) have studied the impact of the introduction of two different quotas for female
representation on boards in a sample of 5.000 American companies, with thresholds of
30% and 50% female representation. They find that these measures increase the number
of women serving, although this does not necessarily imply that more women in general
will serve on a board, since the same women may have more than one appointment (the
so-called “golden skirt” phenomenon). However, independently of the numbers, women
are more likely to reach the top positions.
Although many studies have attempted at examining the effects of female leadership on
corporate performance, there is little evidence on the effects of legally binding quotas on
economic outcomes (Ahern and Dittmar, 2012, Nygaard, 2011, Matsa and Miller, 2013,
Bertrand, 2014). According to Smith (2014), quota laws are a too recent phenomenon to
establish their long-term effects on economic performance. Moreover, the existing studies
focus on Norway, which was a precursor in the introduction of legally binding quotas for
corporate boards. Smith (2014) argues that the findings on the Norwegian quota concern
only the short-term outcomes of the law and the effects might differ over the longer term.
Moreover, Norway ranks very high in international comparisons of gender equality, and the
effects might differ substantially in other countries (Matsa and Miller, 2013). Crutchley and
Vähämaa (2013), for instance, observe that in Nordic countries gender quotas decrease
4
the positive association between board quality and female representation, while in
countries with very low female representation, such as those in Southern Europe, quotas
may improve the relationship between female representation and board quality. It will
therefore be crucial to perform analysis on the introduction of a similar law in other
countries, such as Italy.
Board Gender Quotas and Economic Outcomes
The existing studies on the effects of quotas analyze their impact on firm value (Ahern and
Dittmar, 2012, Nygaard, 2011), short-run profits and return on assets (Matsa and Miller,
2013, Dale-Olsen et al., 2013), organizational decisions and board characteristics (Bøhren
and Staubo, 2013, Bøhren and Staubo, 2014) and wage gaps and female representation
in top positions (Bertrand, 2014, Wang and Kelan, 2013).
The effects of quotas on firm value are controversial. A famous study by Ahern and
Dittmar (2012) shows that there may be negative reactions by the market if it expects
young and less-expert members to serve on boards. In fact, Ahern and Dittmar (2012)
show that the increased number of women in the boardroom as mandated by the law led
to a substantial decrease in firm value, resulting in a significant drop in the stock price of
Norwegian firms at the date of the announcement of the law in 2003 and in a decline in
Tobin’s Q over the following years. Ahern and Dittmar (2012) explain these results arguing
that imposing legally binding constraints on firms has detrimental effects on corporate
performance. Moreover, they find that new female directors in Norway were on average
younger and less experienced than exiting male directors, suggesting that although
gender quotas might be effective at improving gender diversity on the board, there is
substantial cost to shareholders if the new female directors lack the experience of exiting
5
male directors. However, the role of experience as a prerequisite of good performance is a
controversial one. Nygaard (2011) shows that the effect highlighted by Ahern and Dittmar
(2012) depends on asymmetric information between independent members of the boards
and the companies’ managers. Firms with low information asymmetry experience positive
and significant returns at the introduction of the quotas and investors anticipate that new
directors are more effective in firms with less information asymmetries between insiders of
the firm and outsiders.
Another strand of the literature has examined the effects of quotas on financial measures.
Matsa and Miller (2013) use financial data of publicly listed companies in Norway and a
matched control group of Norwegian unlisted firms and Scandinavian firms to find that
short-run profits declined after the quota was implemented. In particular, the authors argue
that the decline in profits is due to an increase in labor costs, and that the effects are
greater for firms with fewer women in the pre-quota period. While Ahern and Dittmar
(2012) argue that the decrease in firm value is due to the lack of experience of the
younger newly appointed women, Matsa and Miller (2013) suggest that the effects of the
quota are explained in the light of a “female leadership style”. Similarly, Dale-Olsen et al.
(2013) compare the return on assets of Norwegian companies that were affected by the
reform and unaffected Norwegian companies to find that in the short run the impact of the
reform on firm performance was negligible.
Quota laws may also have an impact on firm’s organizational decisions and board
characteristics. In particular, Bøhren and Staubo (2014) studied how the quota law
affected the choice of the organizational form of all exposed and unexposed firms over a
nine-year period. Their findings are striking: half of the firms in the sample chose to exit
into an organizational form that was not exposed to the law. Firms that chose to exit were
typically more profitable, small, young, and non-listed. Exiting firms were also more likely
6
to have powerful owners, no controlling family, and few female directors. In another study,
Bøhren and Staubo (2013) showed that the Norwegian quota also had an impact on board
characteristics: after the introduction of the quota law the average fraction of independent
directors on the board grew by 20%.
Interestingly, a recent research showed that the Norwegian law not only affected board
gender diversity in Norway but also had spillover effects in other neighbouring countries:
female board participation in Finland and Sweden increased dramatically just before 2006
(Adams and Kirchmaier, 2013).
Most of the studies on the impact of quotas focus on their effect on firm value and financial
measures, and attempt at examining whether the increased presence of women on the
board as brought about by the quota is beneficial for firms. However, when discussing
policies that promote the role of women in business, it is desirable to focus also on
potential benefits to society rather than simple measures of firm profitability (Ferreira,
2014). Indeed gender quotas may generate cultural effects and contribute to increase
female occupation and fertility, decrease wage gaps and promote the idea that women
may reach top positions without changing their identity (Profeta et al. 2014). Evidence on
this potential cascade effect is, again, not conclusive. Bertrand et al. (2012) found that in
Norway newly appointed female board members were on average more qualified than
their female predecessors, and that the gender gap in earnings within boards fell
substantially. However, the quota did not have any impact on wage gaps or female
representation in top positions. As observed by the authors, in the short run the reform had
a negligible impact on women in business beyond its direct effect on the newly appointed
female board members. In another study, however, Wang and Kelan (2013) find that the
gender quota in Norway not only increased gender equality within the boardroom but also
7
had spillover effects on top leadership positions by increasing the number of female board
chairs and female CEOs.
The Norwegian law has achieved its short-term objectives – increasing the presence of
women on the board – but its long-term effects are still unclear (Smith, 2014). Empirical
work on other European countries where quotas have been recently implemented will
shed more light on the impact of quotas on performance and labor market outcomes.
Moreover, they will also help comparing the effects of quotas with different features, thus
providing evidence that can support policymakers in designing the policies that can best
achieve
the
desired
objectives.
8
References
Adams R.B. and Ferreira D. (2009), Women in the boardroom and their impact on
governance and performance. Journal of Financial Economics, 94:291–309.
Adams, R. B. & Kirchmaier, T. (2013), Making it to the top: From female labor force
participation to board gender diversity. ECGI-Finance Working paper No. 347/2013.
Ahern K. R. and Dittmar A. K. (2012) The changing of the boards: the impact on firm
valuation of female board representation. The Quarterly Journal of Economics, 127:137–
197.
Armstrong J. and Walby S. (2012), Gender quotas in management boards. European
Parliament - Policy Department.
Bertrand M., Black S. E., Jensen S. and Lleras-Muney A. (2014), Breaking the glass
ceiling? The effect of board quotas on female labor market outcomes in Norway. NBER
Working Paper No. 20256.
Bøhren, Ø. & Staubo, S. (2013), Female directors and board indepen- dence: Evidence
from boards with mandatory gender balance. Working paper, BI Norwegian Business
School.
Bøhren, Ø. & Staubo, S. (2014), Does mandatory gender balance work? Changing
organizational form to avoid board upheaval. Journal of Corporate Finance, 28: 152–168.
Bøhren O. and Strom R. O. (2010), Governance and politics: Regulating independence
and diversity in the board room. Journal of Business Finance and Accounting, 37(910):1281–1398.
Carter D.A., Simkins B. J., and Gary Simpson W. (2003), Corporate governance, board
diversity, and firm value. The Financial Review, 38:33–53.
Carter D.A., D’ Souza F., Simkins B. J., and Gary Simpson W. (2010), The gender and
ethnic diversity of US boards and board committees and firm financial performance.
Corporate Governance: An International Review, 18(5):394–414.
Campbell K. and Minguez-Vera A. (2008), Gender diversity in the boardroom and firm
financial performance. Journal of Business Ethics, 83:435–451.
Crutchley, C. E. and Vähämaa E. (2013), European Board Quality and Female
Representation:
The
Impact
of
Quotas.
Available
at
SSRN: http://ssrn.com/abstract=2332143
Dale-Olsen H., Schøne P., and Verner M. (2013), Diversity among Norwegian boards of
directors: does a quota for women improve firm performance? Feminist Economics, Vol.
19, No. 4, 110–135.
Ferreira D. (2015), Commentary. Board Diversity: Should We Trust Research to Inform
9
Policy? Corporate Governance: An International Review, 23(2): 108–111.
Isidro H. and Sobral M. (2013), The effects of women on corporate boards on firm value,
financial performance, and ethical and social compliance. Journal of Business Ethics.
Matsa D. A. and Miller A. R. (2013), A female style in corporate leadership? Evidence from
quotas. American Economic Journal: Applied Economics, 5(3):136–169.
Nygaard, K. (2011). Forced board changes: Evidence from Norway. Institutt for
Samfunnsokonomi, The Norwegian School of Economics and Business Administration
(NHH).
Profeta P., Amidani Alberti L., Casarico A., D’Amico M. and Puccio A., (2014) Women
Directors - The Italian Way and Beyond. Palgrave Macmillan.
Smith, N. (2014), Gender quotas on boards of directors. Little evidence that gender quotas
for women on boards of directors improve firm performance. Aarhus University, Denmark,
and IZA, Germany.
Torchia M., Calabrò A., and Huse M. (2011), Women directors on corporate boards: From
tokenism to critical mass. Journal of Business Ethics, 102:299–317.
Wang M., Kelan E., (2013), The Gender Quota and Female Leadership: Effects of the
Norwegian Gender Quota on Board Chairs and CEOs. Journal of Business Ethics
117:449–466.
10
3. The economic effects of the Italian law on board gender quotas: Empirical
analysis
We now empirically analyze the impact of the Italian law on gender quotas on firms’
outcomes. As we argued in the previous section, this policy instrument is particularly
meaningful in the analysis of the relationship between female leadership and economic
outcomes, because, by looking at the difference between outcomes in presence of quotas
and in their absence, we can identify the causal effects from women to performance. In
this section we will empirically investigate whether the Italian case of gender quotas can
provide additional and new evidence on the relation between women’s empowerment and
companies’ performance.
To study this relationship we build a new dataset that includes characteristics and
outcomes of each of the 241 companies listed on the Italian stock exchange. Outcomes
are the standard variables used in the literature on companies’ performance (see the
previous section), such as the number of employees, the value of production (in thousands
of euro), profits (thousands of euro), short-term debts and long-term debts, ROA, ROI,
ROS, ROE, share capital (or capital stock, thousand of euro). Data are sparse and not
immediately available. As source for our analysis, we rely, when available, on data from
the AIDA (Analisi Informatizzata delle Aziende Italiane) database. In case of missing data,
which are numerous in our sample, we look at the corporate documents available on the
website of the Italian stock exchange or, one by one, at the official data from the budget
balance sheets published on each company's website.
The collection of these data delivers a new comprehensive dataset on listed Italian
companies and several measures of performance. The dataset contains the following
information for each company (see Table 1 for a quantitative description): name, province
11
of registered office, number of employees, value of production (in thousands of euro),
profits (thousands of euro), short-term debts and long-term debts, share capital (thousand
of euro), ROA, ROI, ROS, ROE, for the period 2010-2013 (data refer to end of December,
when budget is closed).
The value of production measures the actual production output of an establishment.
Operating activities include all production output, also production for own use and
production for the enterprise's other establishments. Profits are company’s total earnings,
and include explicit costs of doing business, such as depreciation, interest and taxes.
Short-term debt is an account shown in the current liabilities portion of a company's
balance sheet. This account is comprised of any debt incurred by a company that is due
within one year. The debt in this account is usually made up of short-term bank loans
taken out by a company. Long-term debts are loans and financial obligations lasting over
one year. Long-term debt for a company would include any financing or leasing obligations
that are to come due in a greater than 12-month period. Such obligations would include
company bond issues or long-term leases that have been capitalized on a firm's balance
sheet. Share capital comprises funds made available to a company during its early growth
stages. ROA or Return On Assets is an indicator of how profitable a company is relative to
its total assets. ROI or Return On Investment is a performance measure used to evaluate
the efficiency of a number of different investments. ROS or Return On Sales reflects
operating performance and represents the net income before interest and taxes over the
total sales revenue; it is an indicator of profitability and is often used to compare the
profitability of companies and industries of differing sizes. Finally, ROE or Return On
Equity measures the rate of return for ownership interest of common stock owners.
12
Table 1: Description of the company’s outcomes considered in the analysis
N
Number of employees 200
Production
178
Profits
210
Short-term debts
178
Long-term debts
178
ROA
212
ROE
200
ROI
165
ROS
157
Share capital
211
mean
2,867
643,992
-9,594
0.69
0.31
-2.15
-2.11
0.05
-7.48
1,448,417
sd dev
13,950
3,911,193
1,124,892
13.54
26.66
8.29
49.19
14,700,000
Notes: Unicredit s.p.a. was not included in the descriptive statistics
As the law on gender quotas was approved in August 2011 and entered into force the year
after (August 2012), we classify boards in three (almost equally distributed) groups: 1)
those renovating their composition before August 2011, called “pre-reform”; 2) those
appointing new members in the transition period (i.e., between August 2011 and August
2012), called “phase-in”; and 3) those renovating in the new regime, that is after August
2012, called “post-reform”. We argue that companies are randomly assigned to the three
groups: the date of renewal of the board depends on the past, well before the initial
discussion on the gender quotas law, it cannot be manipulated in order to enter the quota
law before or after, and, in any case, there is no reason to do it.
As far as the methodological strategy is concerned, for each of the observed outcomes we
compare three different measures: the relationship (i.e., correlation) between the
proportion of women on boards and each outcome 1) before the reform entered into force,
and 2) after the reform entered into force; to check whether these linked are not biased by
unobserved heterogeneity, we also consider 3) the causal relationship (i.e., calculated by
13
means of an instrumental variable1) between the proportion of women on boards and each
of the observed outcomes.
Figures 1, 2 and 3 represent graphically our main results.
If we look at the simple relationship between a higher proportion of women and outcomes,
in seven out of the eight observed outcomes we find a negative correlation between the
proportion of women on board and company’s economic results. However, this finding –
measured by means of a basic OLS regression model- might be driven by structural
endogeneity that consistently bias final results. This is the main reason why we adopt a
causal approach to the analysis of this interaction. In fact, findings of a two-stage OLS with
an instrumental variable show that all the considered outcomes are not significantly (and
hence not negatively) affected by the proportion of women on boards. Yet, in seven out of
eight outcome’s indicators a higher proportion of women on boards has no effect on (i.e.,
is independent from) the company’s economic results. On the contrary, focusing on shortterm debts, we notice an even positive correlation: the reform imposing a higher proportion
of women on boards has on average decreased short-term debts. This generally means
an improvement of the income and expenditure balance, or an enhancement of the
company’s capability to be paid by its own customers, i.e. a potential improvement of the
company’s performance.
Obviously, as the law went in place in 2012, it is still too early to have strong relation of
gender quotas on companies’ performance and to fully analyze whether the introduction of
gender quotas has implied a change in companies’ performance. However, our results
suggest that the possible negative impact of gender quotas on economic performance,
1
We exploit the fact that we have 3 different moments in time: phase-in and post-reform become an instrument to study
the effect of the proportion of women on company’s outcomes.
14
which was found by some of the previous studies (including those on the Norwegian case),
and which may represent a crucial worry when talking about the introduction of quotas, is
never present. If anything, the Italian gender quota law has so far been associated to a
better companies’ performance, driven by a more strategic view of long-term investments
and less short term debts.
Figure 1: Proportion
coefficients2
of
women
and
company’s
outcomes.
Regression’s
2
Histogram’s bars represent coefficients of regression analysis, that is the correlation between the proportion of women
on boards and each outcome. The first (red) bar represents the situation before the introduction of gender quotas: the
second bar represents the relationship after the introduction of the law (blue if statistically significant, light blue if not
statistically significant), without taking care of endogeneity; the third bar (green if statistically significant, light green if not
statistically significant) shows the correlation between the proportion of women on boards and company’s outcome when
endogeneity is taken into account. For almost all outcomes, the second bar is (significantly) lower than the first, meaning
that, without accounting for endogeneity, we would observe worsen company’s outcomes after the introduction of gender
quotas. However, this result is biased: the application of a causal approach to the study of this relationship shows that a
higher proportion of women does not affect significantly any of the observed outcomes, with the exception of short-term
debts that are significantly reduced.
15
Figure 2: (continued) Proportion of women and company’s outcomes. Regression’s
coefficients
Figure 3 (continued) Proportion of women and company’s outcomes. Regression’s
coefficients
16