It is always rewarding to participate in academic conferences, where we learn about new research and meet colleagues. I have just returned from Recife, where I participated in the Lacea (Latin American and Caribbean Association of , its acronym in English) meeting. The variety of topics covered and the quality of the work presented were of a high level. In this column, I bring a discussion raised by one of the articles presented in the sessions: how people evaluate the work of company CEOs in an asymmetrical way when considering gender.
A CEO reports that his company experienced a 5% drop in revenue last quarter. If the CEO is Maria or João, will the market react differently? Economist Marcela Carvalho shows, in her article “Who Gets the Benefit of the Doubt? CEO Gender and News about Firm Performance” (who gets the benefit of the doubt? CEO gender and news about business performance), that, based on data, financial markets react asymmetrically to bad news about company performance, depending on whether it is presented by male or female CEOs.
According to the author, based on data from American companies obtained by Ibes (Institutional Brokers Estimation System), the market reacts less to bad news about company performance when the leader is a man, compared to when the leader is a woman. This behavior deviates from what would be expected under rational expectations: the same result should generate the same response regardless of gender. Furthermore, given the rigorous selection process for the CEO position, one would expect analysts and investors to be indifferent to the gender of the person holding the position.
To analyze the reaction of market analysts, professionals specialized in evaluating business results, the author measures these analysts’ beliefs regarding company performance. Beliefs are measured based on the forecasts they make for a given quarter, shortly after the announcement of the results of previous quarters. Positive revisions of beliefs are classified as good news; the negative ones, as bad. The result is surprising: analysts react less to bad news from male-led companies than to bad news from female-led companies.
The work also extends the analysis to the behavior of investors, those who invest their resources in company shares, and the result is no different from the previous one. The market’s negative reaction is less when the company is led by a man. To further deepen the analysis, the author examines the transcripts of conference calls in which executives interact with analysts and investors. It creates a measure that captures the degree of disagreement between the executive’s speech and questions on more negative topics, as well as the tone adopted in these interventions. The result is clear: Analysts express less disagreement with the narrative of male-led companies than with that of female-led companies. This asymmetry is driven exclusively by male analysts, who represent 85% of the total number of analysts. Female analysts are not biased.
This bias, whether statistical or implicit discrimination (a topic I discussed in the column), produces negative effects for companies led by women. The asymmetry appears in the biased pattern of analyst forecasts, stock prices, and the measure of disagreement. This type of behavior may help explain the slow advancement of women in the executive career, as well as the salary differential between men and women who occupy CEO positions. Another point that deserves more investigation is the reason why men show greater trust in companies run by other men and how to change this scenario.
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