Women CEOs and stock price

Peggy M. Lee, Emory University, Goizueta Business School and Erika Hayes James, University of Virginia, Darden School of Business Administration have recently published research exploring the elevation of women to CEO ranks in publicly held companies. The study showed there was a significant, immediate, brief, negative impact on share price following these announcements. The authors reviewed 1500+ announcements of firms that made changes within senior ranks from 1990 - 2000. The full text of the document is available here as a .pdf download: SHE’-E-OS: GENDER EFFECTS AND STOCK PRICE REACTIONS TO THE ANNOUNCEMENTS OF TOP EXECUTIVE APPOINTMENTS*

The study concluded that shareholders are sensitive to changes in leadership, as would be expected. Not surprisingly, the more uncertainty surrounding ascendance of new officers, the more significantly shareholders sell-off their shares. As women rising through the ranks and assuming senior leadership roles within corporations, an event both rare and recent, the uncertainty surrounding their elevation to CEO has an impact over short durations - small, negative and statistically significant.

The authors also examined and identified other factors at work, as one might expect from these results. Studies of this type have a number of issues that researchers have to control for or mitigate to reach meaningful conclusions. The authors are clear in their methods and analysis to identify these problems. Among the problems is the novelty of women assuming senior leadership roles. By and large, these events are newsworthy and therefore bring a degree of media attention that could help relieve uncertainty, but more often raise questions rather than provide re-assurance or quality information.

Markets are excellent arbiters of information that rely on inputs and reactions between buyers and sellers to meet agreeable terms for a transaction. When markets are not in symmetry, signals from the buyer or seller aid in finding agreement on value and price. When announcements are made by corporations about new officers, there is an initial period in which the information is asymmetric - that is the corporation is signaling something. Recipients of the information then send a signal - signifying agreement or disagreement with the corporation's news. The stock market is a mechanism where share holders present their view about the action taken by the corporation. In this way information is brought back into symmetry and is rendered as action between buyers and sellers of the stock. If the news about new officers is greeted positively, the share price should go up. If news is received negatively, the initial reaction of share price to the announcement should be down. The authors present evidence that when women assume the CEO position, the announcements have been greeted negatively.

This resolving of new information and finding the proper price level for the stock after such an announcement begins almost immediately. The study shows that for announcements of new officers and particularly elevating women to CEO positions have a brief (3 days), negative reaction from the market. But 3 days is entirely too short a period for meaningful insights other than for day traders. Depending on the state of the market at the time of the announcement, shareholders may be looking for any excuse to dump a stock. The market could be going down or moving within a range when the announcement is made. The stock could already be on a downward trajectory in anticipation of the change at the top. The reasons why this brief, negative reaction is seen needs to be examined more closely. The impact of women CEOs on stock price long term is an area of significant interest.

The paper also examined other factors which would help reduce the uncertainty for markets and that would be pertinent parts of any announcement - including whether the candidate was an industry insider, firm insider and the previous positions held. As one might expect, the announcement of a new officer without industry or firm experience would be greeted suspiciously by the market. It was observed and noted in particular that announcements about women assuming roles other than CEO within an organization had no more impact than similar announcements about men in these roles. When a woman assuming the CEO position had significant insider experience either within the industry or within the firm, the negative reaction was muted.

Though reporting of these results could be interpreted negatively for women aspiring to senior management ranks, the authors are quick to point out that these events, while rare, are becoming more commonplace. With each woman promoted to senior ranks in large publicly held companies, the uncertainty associated with elevating women to senior officer status is reduced. Promoting from within the industry or firm has less impact on the stock - a conclusion that is probably gender neutral, though the authors did not examine that specifically. Of course, more study is needed to assess the markets long-term reactions to elevating women to senior officer status and especially CEO. Over time, promoting women to the ranks of senior management should not result in negative market adjusting behavior. The authors predict that as this becomes more common place and better information becomes available about the outcomes from women assuming top leadership roles within organizations that the negative impacts observed will disappear.

Comments

[Jonathan]

It would be interesting to apply this study to a smaller data-set, say from the recently published '50 Most Powerful Women'.

Quickly comparing Meg Whitman, eBay's CEO and Carly Fiorina, HP's CEO shows you to drastically different reactions to the leadership they've presented. HP is clearly on a downward spiral and appears to have lost all interest in innovation (see: iPod), while eBay has strategically positioned itself, and held that position, as a leading tech. company.

I believe that in the long run, what matters is the individual person: their skill-sets, beliefs and processes. Both women and men have pros and cons, just as individual people do as well.