Capital Market Incentives and Corporate Gender Diversity

We examine how capital market incentives can drive changes in corporate social behavior. Using the introduction of Japan’s MSCI Empowering Women Index (WIN)—a thematic equity index endorsed by the Government Pension Investment Fund—we study whether firms competing for index inclusion improve corporate gender diversity. Employing a difference-in-differences design based on firms’ proximity to the index inclusion threshold, we find that near-cutoff firms increase the proportion of women employees, particularly in managerial positions. These firms also reduce overtime hours and expand paternity leave, indicating a broader shift toward family-friendly workplace practices. Firms ultimately added to the index experience positive stock market reactions and higher institutional ownership. Our results demonstrate that purpose-driven financial instruments can alter corporate behavior by aligning market incentives with social objectives.