Mehrotra et al (2023)

Mehrotra, Vitra, Lukas Roth, Yusuke Tsujimoto, Yupana Wiwattanakantang.  “Empowering Women by Index Membership: Evidence from a Unique Experiment from Japan.”  Working Paper (University of Alberta), 2023. 

lk notes from presentation by Yusuke Tsujimoto at PRI in Person Academic Network Conference (Tokyo), 2023.

Focus on gender diversity – a serious issue, esp in Asia. At current pace of improvement, it will take us 200 years to catch up. Why hasn’t Japan changed much?  Why are there so many old guys?

 Japan targeting 30% women in executive levels by 2030 (currently 2%).

The Government Pension Investment Fund (GPIF), $1.2 Trillion (Largest in the world) endorses MSCI WIN Index.

 MSCI gender diversity assessment framework - key elements

  • Attraction

  • Retention

  • Promotion

  • Disclosure

  • Policy & Programs 

“Very well-crafted index.”

 We use a tournament-like structure, ranking firms on MSCI Gender Diversity Score within sectors.

Cutoff GICS median of 6.55.  High hurdle to get into index.  WIN index weighted by mkt cap x Gender Diversity Score.

We find:

  • Greater representation

  • Changes in culture- more female-friendly

     

Why do firms care to get into the index?

  • Potentially greater sales in consumer industries

  • Significant increase in institutional ownership (+22%)

     

Key takeaway - indexation can lead to changes in corporate social behavior

 

 

Shaun Davies (discussant) comments –

Very interesting paper

Comments on index inclusion          

Index inclusion carries a myriad of benefits

  • (goes back to Schleifer work in the 80s - inclusion in S&P 500 led to permanent increase in valuation)

  • More visibility to investors, and also to consumers

  • Often associated with lower cost of capital

  • Many parties want to push firms to further a social goal (e.g., empower women)
    Can index inclusion do this?

 

Very clever identification strategy

Ingredients of a tournament

  • Players

  • Rules

  • Exert unobservable and costly effort

  • Players’ actions communicate effort

  • Players receive prizes (there will be a winner)

     

Analogy with this tournament. 

  • Players -700 largest firms in MSCI Japan IMI.

  • Rules – MSCI WIN Index

  • Effort – Still unobservable

  • Actions – Comparison of outcomes

  • Prizes – “Is winning valuable?” really the empirical question of the paper

     

Effort is inherently costly.   Implicit assumption.

 Empirical strategy straightforward – if firms are trying to win, it must be valuable to win. 

Analysis convincingly shows that firms engage in costly actions.

  • Women in workforce increases

  • Increases are NOT due to replacing men

  • Effect increases as you go up the corporate ladder