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Although sexual harassment has been present in the workplace for decades, it was often ignored by companies. However, the #MeToo movement brought to light the widespread nature of such misconduct in the modern business world, making gender-exclusive workplace cultures less acceptable to the public. This is exemplified by the case of Harvey Weinstein, who was co-founder of Miramax. Despite his success in the company, Weinstein faced immediate and severe consequences for his actions. He was fired and subsequently indicted and convicted on sex crime charges in New York and California, demonstrating the changing landscape around workplace harassment and abuse. As the #MeToo movement unfolded, companies were placed under pressure to curb this behavior and to promote gender inclusivity, thus safeguarding their image and building their reputation.
Our paper is motivated by the expectation that as the #MeToo movement gains momentum, the market would penalize firms that were gender-exclusive before the #MeToo movement, while making firms that were already gender-inclusive relatively more appealing to investors. To test this hypothesis, we investigate whether gender-exclusive firms experience negative consequences as the #MeToo movement gains traction, while gender-inclusive firms receive relatively more positive reactions in the capital market.
To measure the level of gender inclusivity and exclusivity in companies, we utilize the composition of their corporate boards. Specifically, we consider all-male corporate boards in all of the five years leading up to the #MeToo movement as indicative of a gender-exclusive culture, as these companies are presumed to provide fewer opportunities and less respect to women. In contrast, we apply a “critical mass theory” and consider firms with boards containing at least three women directors over each of the five years preceding the #MeToo movement, to be indicative of a firm with a gender-inclusive culture.
Our approach of using board gender composition as a proxy for inclusive versus exclusive culture offers several benefits. Research shows that while boards do not determine a company's culture, they tend to embody its values and influence them through their actions. This includes selecting executive leadership and promoting ethical corporate behaviors. Furthermore, because firms are required to disclose all board of directors' information in proxy statements, board gender composition is highly transparent to outside investors, making it a useful indicator for assessing a firm's inclusivity or exclusivity regarding gender-related issues.
Through extensive data analyses, our study confirms that a company’s board gender composition can be a dependable and valuable indicator of its commitment to gender equality and inclusivity. Our findings show that firms with a history of having a critical mass of women directors have a higher probability of having women in executive positions, being recognized as "Best Places to Work" by their employees and receiving higher ESG ratings in the areas of diversity, equity, and inclusion, compared to companies that traditionally exclude women from their boards. These findings align with our theorical construct of using board gender composition as a proxy for a firm’s overall gender-inclusive or exclusive culture.
What we found: #MeToo changes investors’ evaluation of American firms’ risk
Our study revealed the shocking extent to which women have been excluded from corporate boards. We examine 2025 US public firms from 2012 to 2016, a five-year period preceding the rise of the #MeToo movement. Of these firms, we find that 481 (which we identified as gender-exclusive firms) had no women directors at all, while only 122 (identified as gender-inclusive firms) had at least three women on their boards each year during the period.
To examine the impact of the #MeToo movement on these firms, we utilize a timeline of #MeToo events between October 2017 and May 2018, as reported in the Chicago Tribune newspaper. Our findings indicate that gender-exclusive firms experienced a negative cumulated market return of approximately -3.5% during the #MeToo events, while gender-inclusive firms saw a positive cumulated market return of around 2.5%. The sharp differences remain significant after we control for firm fundamentals, other corporate governance measures, and industry factors.
What is particularly fascinating is that as we tracked the market's cumulative reactions to various events, we discovered an intriguing pattern in investors’ reactions: rather than being immediate, investors' responses were gradual. Specifically, we observed a consistent uptick in the market's response to gender-inclusive companies over the 37 #MeToo event dates, with the regression coefficients on the gender-inclusive indicator continuing to rise as the movement progressed. Conversely, we noted a corresponding, symmetrical decrease in the regression coefficients on the gender-exclusive indicator.
Further, to establish a causal relationship between the market reactions we observed and the impact of the #MeToo movement on investors and to alleviate the concern that correlated omitted variables driving our findings, we took an additional step. Specifically, we randomly selected 37 non-#MeToo event dates between October 2017 and May 2018 and used them as a placebo test. When analyzing these pseudo-events, we did not find any discernible pattern in the cumulative market reactions between culture-inclusive firms and culture-exclusive firms.
Another interesting finding of our study is that when we lower the threshold for our gender-inclusive proxy to include just one or two women directors, we no longer observe a positive market response to the #MeToo movement. This discovery supports the idea that investors do not reward companies for mere tokenism.
The #MeToo movement played a significant role in revising investor perceptions of the benefits and costs associated with promoting an inclusive workplace culture.
Taken together, our research suggests that the #MeToo movement played a significant role in revising investor perceptions of the benefits and costs associated with promoting an inclusive workplace culture versus maintaining a corporate environment that excludes women.
The #MeToo movement shows that promoting an inclusive corporate culture matters
In conclusion, our research demonstrates that the #MeToo movement underscores the importance of promoting an inclusive corporate culture in combating emerging business risk. Indeed, the #MeToo movement significantly influenced investor perceptions of corporate culture, particularly about board gender composition. Companies that have a history of excluding women from their boards faced negative market reactions as the #MeToo movement gained momentum. Conversely, firms that embraced inclusivity by achieving gender diversity on their boards were rewarded with a positive market response. Importantly, these findings are robust and consistent across alternative models. Furthermore, when we analyze a set of randomly generated pseudo-events, we do not observe any discernible pattern between gender-inclusive and gender-exclusive companies.
We focus on corporate board gender composition as a proxy for gender inclusion during a time when diversity was shaped by corporate cultures rather than regulatory requirements.
Our research highlights a key insight: in the wake of the #MeToo movement, investors placed a higher value on gender-inclusive corporate cultures. Although our study focuses on the gender composition of corporate boards in relation to the #MeToo movement, it is important to note that diversity does not necessarily equate to inclusion. In our specific context, we focus on corporate board gender composition as a proxy for gender inclusion during a time when diversity was shaped by corporate cultures rather than regulatory requirements. Prior to the #MeToo movement, firms were not compelled by external forces to achieve diversity targets; rather, their choices regarding board gender naturally reflected their inclusivity. However, in the post-#MeToo era, as investors, regulators, and social activists increasingly prioritize gender diversity, such diversity may no longer accurately reflect a firm's inclusivity culture.
What would be interesting to study in future research is the conditions under which diversity promotes inclusion and when it does not. With various pressures compelling firms to diversify their boardrooms, it is crucial to examine the actual outcomes regarding equity and inclusion.
Another point we want to make is that the #MeToo movement is just one example of the various evolving business risks that modern enterprises must navigate. These risks encompass a wide range of areas, from technological and social to political and environmental. Our study underscores the value of a strong corporate culture in mitigating negative market reactions that firms may face when encountering business shocks. Gender diversity and inclusion is only one aspect of good corporate culture—while continuing promoting workplace inclusion is critical, having clear business purpose and establishing social trusts with the stakeholders are equally important aspects of sound business culture.