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When and Why Do Investors “Reward” Organizations for Gender Diversity? The Moderating Role of Diversity Frictions

We examine when and why investors “reward” organizations for gender diversity, across a field quasi-experiment and four pre-registered experiments. We theorize that in contexts where inefficient diversity frictions (e.g., hiring biases or hostile work environments) distort gender diversity downwards, news that a firm has high (vs. low) gender diversity levels is a sign the firm suffers less from frictions and is thus likely to achieve better future performance, leading investors to revise their beliefs and valuations in a positive direction. Consistent with our theory, we show that investors value firm gender diversity, especially in contexts where diversity frictions are stronger (technology vs. finance sector, upper-level vs. lower-level roles, anti-woman vs. anti-man hiring biases), because investors believe it is a cue that a firm is more creative, less exposed to legal risks, and a more ethical investment. If firms had more gender diversity, investors would likely “reward” them with higher valuations.

David Daniels
National University of Singapore (NUS) Business School

Jennifer Dannals
Tuck School of Business at Dartmouth College
United States

Thomas Lys
Northwestern University
United States

Margaret Neale
Stanford University
United States


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