On the side effects of mandatory gender diversity laws in corporate boards

Abstract

Regulators around the world are pushing for a higher representation of females on corporate boards. While this move reduces the representation-based gender gap (RGP), less is known how this may affect the compensation-based gender gap (CGP). Using 56,976 director-year observations around the mandatory gender quota law imposed in the Indian market, we find that a significant reduction of RGP in the post-gender quota law period comes at the cost of a substantial increase in CGP. Our compensation decomposition analyses indicate that CGP in the corporate directors' labour market is driven by disproportionately higher salaries and commissions paid to male directors. Overall, our results suggest a more holistic approach to address the gender gap in corporate boards.