These troubling but not definitive findings suggest that the market is skeptical about female board members regardless of their credentials. We note that previous studies have shown that two or more female directors are necessary to make a difference.
Using 14 years of panel data on U.S. firms, we show that the addition of a female board member has no impact on objective measures of firm performance, but does result in a systematic decrease in the firm’s market value. We explain this puzzling finding by suggesting that the decision to appoint a female director will alter the market’s perception of the appointing firm. Using experimental data, we show that female board appointments are taken as a signal that the firm is motivated by social performance goals, to the detriment of pure profit maximization. In a third panel study, we show that firms perceived to be motivated by social performance goals suffer a decrease in firm value. Collectively, these three studies indicate that female board appointments are perceived as diversity measures, and a signal of a broader commitment of the firm to social welfare goals, as opposed to strict shareholder value maximization. This mechanism, we argue, operates irrespective of the actual or perceived competence of the female candidate. We discuss the implications of our findings for future research on board diversity and firm performance.