Effectiveness of board gender diversity rules when the glass ceiling is a constraint

Prior research provides mixed evidence on whether board gender diversity (BGD) rules create value. Leveraging the adoption of the BGD rule in Korea, we investigate whether and to what extent the rule's effectiveness is constrained by the limited supply of qualified female candidates. Using a difference-in-differences approach, we find no value effect of the BGD rule. However, the value effect varies depending on the type and timing of board changes. Firm value declines when firms replace, rather than supplement, incumbent directors, or when they comply closer to the regulatory deadline. A detailed analysis of individual directors shows that incoming female directors are, on average, younger, less experienced, and more likely to have non-business backgrounds compared to the departing directors. This suggests a potential decline in board competency. Our findings suggest that the limited pool of qualified female candidates (i.e., the glass ceiling) hampers the effective implementation of the BGD rule.