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Company Stock Prices Fall When Women Are Added To Boards Of Directors
Turns out that many companies who seek to embrace equality by any means could actually be doing their shareholders a disservice. But hey, we thought equality of outcome was a guaranteed fast track to utopia! What happened?
In fact, many companies experience stock price declines when women are added to the board of directors, Bloomberg points out.
An analysis of 14 years of market returns across almost 1,900 companies recently revealed that when companies appoint female directors, they experienced two years of stock declines. Companies saw their stock fall by an average of 2.3% just from adding one additional woman to their board.
Kaisa Snellman, an assistant professor of organizational behavior at INSEAD business school and a co-author of the study said: "Shareholders penalize these companies, despite the fact that increased gender diversity doesn't have a material effect on a company's return on assets. Nothing happens to the actual value of the companies. It's just the perceptions that change."
The study suggests that investor biases are to blame. The study asked senior managers with MBAs to read fictional press releases announcing new board members. The statements were identical, but for the gender of the incoming director.Participants said that men were more likely to care about profits and less about social values, while women were deemed to be "softer".
Snellman continued: "If anyone is biased, it is the market. Investors should consider organizations that add women and other under-represented groups to their boards because there's a good chance that company is being undervalued."
Despite this study's findings, other non-academic reports over the years have suggested that diverse leadership results in corporate success. A McKinsey analysis concluded that board diversity correlates with positive financial performance and a 2019 Credit Suisse report noted a "performance premium for board diversity".
These findings have prompted investors like BlackRock to push for diversity on boards. Women now account for more than 25% of board members on the S&P 500 and 20% of boards globally.
(Score: 4, Insightful) by Mojibake Tengu on Thursday November 28 2019, @04:47PM (5 children)
Clash of cultural paradigms is always fun.
Well, this kind of bias is quite usable for subtle market manipulation without risk of statutory backfire.
Respect Authorities. Know your social status. Woke responsibly.
(Score: 0) by Anonymous Coward on Thursday November 28 2019, @06:01PM
Clash of cultural paradigms is always fun.
Well, yeah, women and invisible hands. The president's hands are almost invisible, you know, very small. I hope people don't think badly of me for bringing it up.
(Score: 4, Interesting) by Thexalon on Thursday November 28 2019, @11:53PM (3 children)
Well, funny how this study suggests that the invisible hand of the markets isn't rational, since the study specifically states that it doesn't affect a company's performance, only whether investors liked them. It's almost like the perfectly rational self-interested homo economicus is more fiction than reality.
Of course, it may also be an indication that a company's board has approximately zero effect on its productivity, profitability, etc.
The only thing that stops a bad guy with a compiler is a good guy with a compiler.
(Score: 5, Insightful) by Azuma Hazuki on Friday November 29 2019, @03:20AM (1 child)
Economics is based on three massive lies: that there are infinite resources, that growth can continue indefinitely, and that people are rational actors.
I am "that girl" your mother warned you about...
(Score: 1, Interesting) by Anonymous Coward on Friday November 29 2019, @07:11PM
*sigh*
No it is not, "based on three massive lies: that there are infinite resources, that growth can continue indefinitely, and that people are rational actors"
It is based on lies. But the lie is that anyone knows what the fuck they are talking about. They try to measure things that change from one moment to the next. You were close with the 'rational actors' bit. But it is not that. The thing is one giant system that is intermixed with crazy knock on side effects that no one can predict.
I can show you what I mean with an economic thought experiment. I will even use the goto example in most econ 150 classes (which is about how far most people go in their understanding). I will pull in some macro concepts to demonstrate it.
You are a pizza place owner.
Tada you are selling lots of pizza. You review the books. Hey if you raise the price a little bit you can sell a few less pizzas but make the exact same amount of money. That is marginal revenue equals marginal cost (MR=MC).
Tada! you can let one guy go because you are not making as many pizzas. But your costs are the same.
Womp Womp. Society is slightly worse off as someone is now unemployed. He gets a job somewhere else. So 'tada?'
Womp Womp. Your customers are getting less pizzas and have less money. But you have more money. So 'tada?'
Womp Womp. Your taxes went up slightly. That means society gets more money in taxes. So 'tada?'
Womp Womp. Your sales go down slightly as now you are now 'that expensive place'. Your MR=MC changed.
Tada you are selling less pizzas you hire that one guy back because MR=MC. Your price are back where you started. Everything is back 'to normal'.
But sales are still down remember you are now tagged with 'that expensive place' moniker.
All rational choices. But not necessarily good outcomes. You can not measure 'that expensive place' sentiment. There are hundreds of things that you can not measure. Economics is deluded to think it can measure them.
Socialists are even worse. They think they can measure everything too but know better than everyone else and pretend they can get all of those inputs right because they are smart. They are stuck with the same rules as capitalists. But want to pretend they are not.
Most economics formulas are little more than basic algebra. The quants are the ones who are closest they have at least an inkling that everything is a formula. The problem is they are measuring things that are more like random number generators. They work 'ok' in the steady state. But if someone changes a variable 18 levels removed from them it can wack them out. They will have no idea why because they did not even know they had an input. N dimensional tensor physics is more the type of math they need to be using and they are still playing with rulers and protractors.
(Score: 0) by Anonymous Coward on Friday November 29 2019, @08:42AM
You, as well as the study's authors, are failing to note individuals' experience. You say, "Company A did Y and they're doing xyz profit-wise. Would you invest?" and then you say "Company A did X and they're doing xyz profit-wise. Would you invest?" and expect based on varying input that you'll have equivalent output. Why would you ever expect that?
People put their own experiences into everything that they do. If they interpret this action to be worse for a company's future, they'll act accordingly, based on what they've seen in the past. This isn't "discrimination" -- this is evidence-based action.
If you want to push socialism, then push socialism. Stop trying to dress it up as anything-but-socialism.