A study by Stanford University, Northwestern University, Dartmouth College and the Hong Kong University of Science and Technology found investors are more likely to bet that a company will see its stock prices rise if it reported “higher-than-average” gender diversity among its staff.
The study’s authors, David P. Daniels, Jennifer E. Dannals,Thomas Z. Lys and Margaret A. Neale, found a positive correlation between press announcements of companies’ gender diversity achievements and a rise in stock prices for those companies. They looked at investor reactions to approximately 60 gender diversity announcements for companies in the tech and financial sectors between 2014 and 2018.
The study also included qualitative research through a survey of participants. All who participated in the test reported they had some kind of managerial experience.
Responses to the survey suggest investors see value in gender diversity, linking it to innovation and creativity, and that investors prefer more diverse companies because they agree with gender diversity on a personal or political level.
Large companies like Google and Facebook are notorious for having dismal numbers regarding workforce diversity. In 2014, Google’s workforce diversity report showed only 30% of employees were women, 3% were Hispanic and 2% were Black. Now, in 2019, Google has hardly improved. Women make up about 33% of their employee base, according to its annual diversity report. Just under 37% of Facebook’s employees are women, according to the company’s 2019 Diversity Report.
Margaret Neale, an organizational behavior professor at Stanford Graduate School of Business, and two of her doctoral students began the study to find whether investors cared about companies’ gender diversity. According to Business Insider, Neale and her team highlighted Google’s 2014 diversity report, which showed 70% of the company’s employees were men. The company’s stock fell .39% the day the announcement was made. They then projected that if Google had just one percentage point more of female workers, it could have been worth about $375 million more.
The researchers found that the correlation between share price and diversity levels was even higher among other tech companies than what they observed from Google, which they used as a benchmark. When tech companies announced better-than-expected gender diversity, investors invested in them at higher rates.
In the financial sector, the researchers found a similar correlation. They found when an article came out announcing a company was delivering on diversity, stock prices for that company rose that same day.
For the next part of the study, researchers conducted an experiment. They gave a sample of people with managerial experience $1 to bet on whether a company’s value would rise or fall depending on its gender diversity announcements. They would place their bets and then link their decision to certain “belief items,” including morality, creativity, conflict of ideas and risk aversion.
The subjects were more likely to bet their dollar on the stock price rising following an announcement reporting good gender diversity. They also reported believing that more diverse companies were more likely to think creatively and act ethically and less likely to have personality conflicts and negative political attention. They also felt these companies were more likely to litigate lawsuits instead of settling.
Additional studies have also pointed to the financial success of companies with more women in the workforce. Though this study focused on women employees of all levels, a 2015 MSCI report found companies that have women on corporate boards achieve more profitability, fewer controversies and better decision-making than those without female leadership.
Of the results of the study, Neale said in Stanford’s report announcing the release of the study that they suggest diversity has more benefits than just helping a company appear more ethical.
“This goes beyond saying diversity is a good idea because it’s ethical,” she said. “Shareholders are saying, ‘If you’re not as diverse as we want you to be, there are going to be economic consequences.’”