Board Diversity Reforms: Do they Matter for EU Bank Performance?

We examine the impact of governance reforms related to board diversity on the performance of EU banks. Using a difference-in-difference approach, we document that reforms increase bank stock returns and their volatility within the first three years after their enactment. The type of reform matters, with quotas increasing return volatility more compared to affirmative actions. The effectiveness of reforms depends on a country's institutional environment. The impact on volatility is lower in countries more open to diversity, with common law system and with higher economic freedom. Finally, reforms play a bigger role in banks that have ex-ante less heterogeneous boards.