How do investors really react to the appointment of Black CEOs?

Seung‐Hwan Jeong, Ann Mooney, Yangyang Zhang and Timothy J. Quigley

Strategic Management Journal, 2023, vol. 44, issue 7, 1733-1752

Abstract: Research Summary A recent study found that markets react negatively to the appointment of Black CEOs, with an average cumulative abnormal return of −4.2%. The authors argue this is caused by investors invoking racial biases and stereotypes. In contrast, using a comparable sampling period and analytic approach, we find markets react positively to the appointment of Black CEOs with an average abnormal return of +3.1% (or +2.0% after conservatively addressing outliers). Our results are consistent across several alternative analyses, sample adjustments, and robustness tests. We argue racial biases and stereotypes in markets are outweighed by investor appreciation for the higher bar for advancement that Black CEOs face and the exceptional attributes they must exhibit as a result. To conclude, we discuss the implications of our findings. Managerial Summary A recent study found that markets react negatively (−4.2%) to the appointment of Black CEOs which the authors attribute to racial biases and stereotypes among market participants. If true, boards might be dissuaded from making such appointments out of concern for the firm's stock price and their own shareholdings. Using a comparable sample, we find the opposite with an average return of +3.1% for the appointment of Black CEOs. We argue biases and stereotypes are outweighed by investor appreciation for the higher bar for advancement that Black CEOs face. Specifically, we show Black CEOs are appointed with, on average, more years of education, advanced degrees, and elite education than a comparable group of White CEOs. We share data and code underlying our primary results.

Date: 2023
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