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Gender Diversity: From Wall Street to Main Street

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Abstract

Examining the effect of hedge fund activism on gender diversity, we find that the number of female directors decreases after a firm is targeted by hedge fund activism. Using the employment history data from BoardEx, we find that activist hedge funds are more likely to appoint people with finance backgrounds to the boards of target firms. And the newly appointed finance background directors are almost all male because of the lack of diversity in the finance industry. The lack of gender diversity of the hedge funds’ networks and the lack of qualified female directors in the local area also help explain the impact of hedge fund activism on gender diversity on the board.

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Notes

  1. The countries that passed these regulations include at least Norway, Spain, France, Italy, Netherlands, and Belgium. In the United States, California became the first state to mandate a board gender quota in 2018.

  2. https://www.wsj.com/articles/blackrock-companies-should-have-at-least-two-female-directors-1517598407.

  3. https://www.bloomberg.com/opinion/articles/2018-04-05/activist-investors-should-taker-the-lead-on-board-diversity.

  4. https://kf-site-production.s3.amazonaws.com/media_elements/files/000/000/281/original/ 2019_KF_DIVERSITY_REPORT-FINAL.pdf.

  5. MSA, Metropolitan Statistical Area, is a region that consists of a city and surrounding communities that are linked by social and economic factors. Thus, we take one MSA as a local job market.

  6. Brav et al. (2010) present three reasons. First, hedge fund managers have stronger financial incentives to make profits. Second, hedge funds are lightly regulated since they are not widely available to the public. Third, hedge funds face fewer conflicts of interest than some other institutional investors, such as mutual funds and pension funds.

  7. We thank Wei Jiang for sharing the data with us.

  8. Our BoardEx is only available from 2000 to 2018. Because we need at least four years of post-event and before-event information to observe the effects of hedge fund activism, we only can check the activism from 2004 to 2014 in our studies.

  9. These attributes could be related to the leaving and staying of directors on the board. Directors are more likely to leave the board if they will retire soon. Executive directors have more power on the board and are less likely to leave the board. Personal network size represents the ability of directors. The financial industry experience implies their possible connection with hedge funds.

  10. Most of the differences are driven by differences across firms. However, after controlling for firm-year fixed effects, there is still a 6% pay gap between male and female directors, that is, male directors are paid 6% more than female directors in the same company in the same year.

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Acknowledgements

Xinming Li gratefully acknowledges financial support from the National Natural Science Foundation of China, Grant No. 72103106, the Ministry of Education of China, Grant No. 21YJC790067, and Liberal Arts Development Fund of Nankai University, No. ZX20220073.

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Authors and Affiliations

  1. Department of Finance and the Childress-Klein Center for Real Estate, Belk College of Business, University of North Carolina at Charlotte, 9201 University City Blvd, Charlotte, NC, 28223, USA

    Yongqiang Chu

  2. School of Finance, Nankai University, 38 Tongyan Road, Jinnan District, Tianjin, 300350, China

    Xinming Li

  3. Department of Finance, School of Business, Renmin University of China, 59 Zhongguancun Street, Haidian District, Beijing, 100872, China

    Daxuan Zhao

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  1. Yongqiang Chu
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Correspondence to Daxuan Zhao.

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Chu, Y., Li, X. & Zhao, D. Gender Diversity: From Wall Street to Main Street. J Bus Ethics 188, 151–168 (2023). https://doi.org/10.1007/s10551-023-05328-w

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