Index Inclusion and Corporate Social Performance: Evidence from the MSCI Empowering Women Index

Abstract
We exploit a unique setting in Japan to examine whether equity market indexation can drive corporate social performance. In 2017, the Government Pension Investment Fund of Japan adopted the MSCI Empowering Women Index (WIN). To qualify, firms must meet certain criteria for the advancement of women employees. Using a difference-in-differences methodology, we find that firms competing for index membership improve women’s participation in the workforce, particularly in management positions. Treated firms exhibit an increase in paternity leaves and a reduction in overtime, indicating a shift towards a more inclusive corporate culture. We also find that inclusion in the WIN is followed by higher institutional ownership without detracting from shareholder value. Our findings highlight the potential of purpose-driven equity indices through which capital markets can influence and transform corporate social behavior.