Are board gender quotas suitable for family firms? Evidence from the EU “Women on Boards” directive

This paper analyzes the cumulative abnormal market returns (CAR) for European listed family firms surrounding the announcement of the 2022 European Union (EU) directive requiring listed firms to appoint a minimum of 33% female directors (or 40% female non-executives). Grounded in socioemotional wealth theory, it is argued that quota-induced directorial appointments may conflict with restricted socioemotional goals realized through board control. Evidence is found that family firm ownership and control is negatively related to the CAR surrounding the EU board gender quota announcement. This result is consistent with the defense of family board dominance potentially reacting to the quota mandate with nepotistic nominations of female family directors or family antagonism towards non-family appointees, both of which ultimately impair firm performance. Separate analysis of the subsample of family firms indicates that CAR are negatively related to the proportion of family board seats, suggesting that the disruptive effects of EU quota for family-firm control structures are particularly intense for family firms relying heavily on board domination to exert control. Finally, the disruptive effects of board gender quotas for family firms are alleviated when family control is protected by a separation between voting and cash-flow rights. The findings highlight the potential negative impact of imposing rigid corporate governance regulations that fail to account for the heterogeneity in the goals and governance needs of family firms.