Study finds California gender quota law lowers value of companies


A study conducted by three academics has found California’s law requiring companies to have female directors on its boards has already negatively impacted stock prices.

SB 826 requires every publicly traded California company to have one female director on its board by the end of 2019. By the end of 2021, firms with five-member boards must have at least two female directors, and companies with six or more members on its boards must have at least three female directors. 

It is estimated that more than 1,000 female directors must be added to California corporate boards by 2021 as a result of the law.

Two Clemson University researchers and a University of Arizona professor conducted a study which found an average -1.2 percent stock price change in the initial market reaction to SB 826.

The authors of the study say the negative market reaction does not suggest the presence of female directors adversely affect a firm’s value. Rather, imposing a constrained optimization on board composition can be costly for some firms.

“We didn’t find a negative reaction to the requirement of adding one female director,” said co-author Vincent Intintoli, an assistant professor of finance in Clemson’s College of Business. “More onerous was the requirement that companies add up to three female directors by 2021.”

Firms with a greater supply of female candidates can more easily replace existing directors and are less negatively impacted by the law. The costs associated with SB 826 compliance are negligible for the largest firms but substantial for the smallest, the study found.

The $100,000 penalty for failure to comply with the law in 2019 is less than the average director’s pay for some firms. But, the penalty increases to $300,000 in 2020, if companies still have not added a female director.