® Academy of Management fournal 2003. Vol. 46, No. 4, 497-505. SHARE PRICE REACTIONS TO WORK-FAMILY INITIATIVES: AN INSTITUTIONAL PERSPECTIVE MICHELLE M. ARTHUR University of New Mexico This study of 130 announcements in the Wall Street Journal illustrated a significant, positive relationship between work-family human resource initiatives and share price. Institutional theory provided the theoretical underpinning for such a relationship. Share price reactions occurring both before and after "legitimation" of a program were examined. As hypothesized, the work-family initiative and shareholder return rela- tionship was higher in high-tech industries and, to a lesser extent, in industries with higher proportions of female employees. Implications of the results are discussed and suggestions for future research presented. According to institutional theory, organizations are embedded in institutional environments that influence the practices and policies adopted (DiMaggio & Powell, 1983). Several institutional researchers have investigated the characteristics of firms adopting work-family initiatives (Goodstein, 1994; Ingram & Simons, 1995; Morgan & Milliken, 1992). Firm characteristics, such as the proportion of women employed, size, geographic location, sec- tor, and industry affiliation, have been shown to influence the pace at which work-family initiatives are adopted (e.g., Morgan & Milliken, 1992). Re- searchers have suggested that once a work-family policy becomes institutionalized, a firm's adoption of that policy is an act of conformity to social ex- pectations and a source of organizational "legiti- macy" (Goodstein, 1994). Legitimate organizations may be better able to garner resources such as grants, loans, and investments (Meyer & Rowan, 1977). Because legitimacy increases firms' ability to secure resources, adoption of work-family initia- tives may increase firm value. Firm characteristics have been shown to be predictors of such adop- tions. They may also moderate the relationship be- tween the adoption of work-family initiatives and firm value. Research examining the relationship between work-family policies and firm-level outcomes is largely lacking. One exception is Perry-Smith and Blum's (2000) research examining the relationship between work-family human resource "bundles" and perceived firm performance. No study, how- I am grateful to Alison Cook, Cindy Emrich, Jerry Ferris, Steve Green, Kevin Hallock, Huseyin Leblebici, Joe Martocchio, Laurie Morgan, Heather Smithson, Sara Rynes, and three anonymous reviewers for their thought- fully constructive comments. ever, has examined the relationship between work- family initiatives and capital markets. The purpose of the study described here was twofold. First, by conducting an event study, I tested the immediate stock market response to firm announcements of work-family policies. I used institutional theory as the theoretical underpinning for predicting a rela- tionship between firm announcements of work- family human resource decisions and share price. Second, I investigated industry characteristics as moderators of the relationship between work- family policies and shareholder returns. Following Perry-Smith and Blum (2000), I examined propor- tion of female employees as a moderator of the work-family initiative and share price relationship. I extended the analyses to consider unemployment rate and high-tech classification as potential mod- erators. I investigated these industry characteristics to examine whether variables that affect labor sup- ply generate an institutional environment wherein the adoption of work-family initiatives is essential to legitimacy. THEORETICAL BACKGROUND AND HYPOTHESES Work-Family Initiatives The earliest large-scale work-family programs were government-sponsored on-site child care cen- ters instituted in response to an influx of female labor during World War II (Glass & Estes, 1997). Following the war, men returned to their jobs, women moved out of the workforce, and these child care centers were closed (Glass & Estes, 1997). However, in the past 30 years, women have again become a large proportion of the labor force. Con- currently, the structures of the family and of work have changed. Dual-career earners and single 497