Firm Performance and Female Director Characteristics: An Empirical Study of the Norwegian Quota Law

Pernille Lønborg Madsen

Student thesis: Master thesis


In 2005 Norway passed a law requiring public limited companies to have at least 40% females on the board of directors. Existing firms were given a period of two years to comply with the law. Norwegian business leaders were not particularly fond of the law, fearing the economic consequences of the law and a lack of qualified women to choose from. The purpose of this thesis is to evaluate the effect of the law on firm performance and on the characteristics of female directors. Existing theory argues that firms will benefit from higher board diversity due to an increase in monitoring and the firms access to knowledge and skills. Based on evidence from previous studies it is not clear that diversity benefit firm performance, in fact several studies find a negative effect from increasing gender diversity. Possible explanations for this negative effect is that boards can become too diverse, which leads to higher coordination costs and interaction difficulties, also firms might already have chosen board structure as to maximise firm value, which means that imposing regulation on board structure will lead to non-optimal boards, which in turn hurts firm performance. The Norwegian quota law worked as an exogenous shock to companies. To test the effect of the Norwegian quota law on firm performance a sample of 175 Norwegian and Swedish firms observed from 2005 to 2009 where used to perform a difference-in-difference analysis. In addition it was tested whether gender diversity affects the performance of Swedish firms differently than the performance of Norwegian firms, using a fixed effects model with lagged values. Finally the changes in female directors’ characteristics before and after the law in Norway and Sweden was analysed using hypothesis testing. The analysis showed that firms affected by the law experienced a large significant drop in firm performance on average from compliance to 2009. Firms in Norway and Sweden responded similarly to an increase in female directors, indicating that the quota law led to an additional negative effect for the firms that complied with the law. Also the characteristics of female directors in Norway were somewhat different after the law than before compared to Swedish female directors. On average female directors in Norway were less experienced and more foreign women were elected on Norwegian boards. These results confirm some of the worries of Norwegian business leaders and indicate that quotas might not be an optimal way to increase female board representation, because they have a negative effect on firm performance.

EducationsMSc in Applied Economics and Finance, (Graduate Programme) Final Thesis
Publication date2012
Number of pages100