1 Who Rewards Diversity ?

Although many studies have explored the consequences of diversity, few have considered how they are affected by social context. This paper develops an institutional framework for understanding how a board’s gender diversity influences its organization’s analyst ratings. I propose that evaluators reward gender-diverse organizations with higher ratings when gender diversity is more institutionalized and that female evaluators do so more than male evaluators. Using a unique longitudinal dataset of 290,281 stock ratings by 5,069 securities analysts, I find that an organization’s analyst rating increases as women’s representation on its board increases, but only when industry peers also have women on their boards or when news about the industry frequently mention board diversity, both of which reflect normative acceptance of female board membership. This pattern is more pronounced when the analyst is female; as board diversity gains normative acceptance, female analysts’ reward for gender-diverse boards increases more than that of male analysts. These findings contribute to the diversity literature by showing the importance of social context in shaping the consequences of diversity. They also extend institutional theory by demonstrating gender heterogeneity in the enforcement of institutional norms.