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By Vikas Mehrotra, Lukas Roth, Yusuke Tsujimoto and Yupana Wiwattanakantang. Being included in the WIN and investing in greater workforce gender diversity does not hurt shareholder value, an often-debated fact issue when it comes to greater investments in firms’ social performance. 

In today's world, where sustainability and social responsibility are gaining increasing importance, the role of corporations in addressing societal issues has come under scrutiny. Our paper shows an innovative approach to encourage positive change—that is, can specially crafted equity indices bring about changes to corporate social behaviour? In 2017, the Government Pension Investment Fund of Japan, the world’s largest pension fund, adopted the MSCI Empowering Women Index (WIN), aiming to address gender diversity in corporations.

The index features a quasi-tournament-like structure in that it is hived off the top half of the MSCI Japan IMI Top 500/700 Index. Each firm in the IMI 500/700 is ranked on its MSCI Gender Diversity Score relative to its industry, and the top 50% are included in the WIN. In other words, inclusion in the prestigious WIN is structured loosely as a ‘tournament’ in which companies compete with their peers based on certain criteria for the advancement of women in their workforce.

Why would belonging to the WIN lead to changes in firm behaviour and practices, or even be desirable? We posit two main channels through which this can happen. First, the WIN is a prestigious index created by the GPIF, the world’s largest pension fund, with ¥191 trillion (~$1.75 trillion) in assets under management in 2021. The index inclusion, therefore, provides positive recognition to qualifying companies. Second, the WIN is endorsed and invested by Japan’s most influential financial institutions, the GPIF and the Bank of Japan, who share the goals of the index. Therefore, belonging to the WIN may increase the firm’s visibility to investors, especially to the GPIF or other Japanese institutional investors and large foreign institutional investors pledging to consider a firm’s sustainability performance in their investment decisions.

In our empirical tests we compared gender diversity performance for the marginal firm that either gains inclusion in the index or just misses it vis-à-vis firms that rank sufficiently low that exclusion from the index is a fait accompli. Thus, this difference-in-differences methodology affords us a plausible identification strategy in establishing causality. We identify treated firms as those that rank in the vicinity of the inclusion threshold (ranked between the 40th to 60th percentile; the threshold is the median), and control firms as those with a much lower probability of gaining inclusion (ranked between the 40th to 10th percentile). The difference-in-differences analysis compares the differences of various workforce gender diversity measures in these two groups between the years before the WIN’s inauguration in July 2017 and the years after 2017. The sample period is 2013 to 2020.

We measure workforce gender performance with data obtained from the Toyo Keizai CSR Workforce database. Toyo Keizai, founded in 1895, is among the top two prominent publishers in Japan along with Nikkei that has published economic and business news for more than a century. The Toyo Keizai database contains rich workforce survey data with more than 200 line items in aggregate and many line items broken down by gender—for example, the number of employees, turnover of employees, number of employees by position in the workforce, and maternity/paternity leaves, to name a few. These data allow us to construct various workforce gender diversity outcome measures.

The results,  using our difference-in-differences design, controlling for firm characteristics and firm and time fixed effects, show that treated firms (compared to control firms) significantly improved the fraction of women in the workforce following the launch of the WIN. In terms of economic significance, treated firms improved their fraction of women in the workforce by about 5% per year compared to control firms. A visual parallel trends analysis and regressions in event time confirm that the change happened in the years after the WIN was created. Thus, the increase is not due to long-run secular trends either across all firms, or within the treated firms themselves, lending credit to a directional interpretation of our results—the WIN incentivised firms to significantly improve their overall gender diversity in the workforce. In addition, our results show that the increase in the fraction of women in the workforce is particularly explained by firms hiring more women, and not by a change in male employees.

Our results show that the increase in women in the workforce is specifically concentrated at senior managerial levels, executives, and the board of directors. Thus, firms do not just hire more women at the lowest ranks, which is promising for firms’ future improvements in the workforce through a ‘trickle-down effect.’ We also document positive social externalities and a possible shift in firms’ workplace culture. For instance, we find that male employees in treated firms are more likely to take paternity leaves in the post period. Treated firms also have shorter overtime working hours post WIN. These practices allow women to stay in the workforce. It is also a sign of a shift in culture in that male employees are not afraid of losing their jobs because they take parental leave (it is now more socially accepted) and they participate more equally in family responsibilities.

Finally, we document that institutional ownership growth is stronger for firms in the WIN vis-à-vis the excluded firms. WIN firms’ institutional ownership increased by three percentage points compared to non-WIN firms. Our results also suggest that being included in the WIN and investing in greater workforce gender diversity does not hurt shareholder value, an often-debated issue when it comes to greater investments in firms’ social performance.

In conclusion, the unique tournament-like structure of specially crafted equity indices such as the WIN, combined with its emphasis on gender diversity, has shown to be effective in promoting tangible improvements in a female friendly culture in corporate Japan. These findings pave the way for regulators, investors, and companies to explore the broader application of equity indices in advancing social responsibility. By leveraging the social power of index creation, asset owners can collectively foster a more inclusive and sustainable corporate landscape.


By Yupana Wiwattanakantang (National University of Singapore), Vikas Mehrotra (University of Alberta), Lukas Roth (University of Alberta and ECGI) & Yusuke Tsujimoto (University of Alberta).

If you would like to read further articles in the 'Corporate Governance in Asia Special Issue' series, click here

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This article features in the ECGI blog collection Corporate Governance in Asia

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