As California goes, so goes the nation? Board gender quotas and the legislation of non-economic values

In 2018, California became the first U.S. state to introduce a mandatory board gender quota for all firms headquartered in the state. Even though the constitutionality of the law is still debated, we document large negative announcement returns to the adoption of the gender quota for California firms and large spillover effects for non-California firms. We show that these effects are not explained by frictions in the director labor market and propose a novel explanation: Shareholders’ disapproval of the government’s attempt to legislate non-economic values. Consistently, we find that non-California firms in states that followed California’s legislative lead in the past by, e.g., introducing gender quota proposals, adopting stricter environmental laws, raising minimum wages, or legalizing cannabis react more strongly to the California gender quota. We also find that California and non-California firms with higher sensitivity to policy uncertainty react more negatively to the quota’s adoption.