In-Group Bias in Financial Markets
49 Pages Posted: 13 Dec 2016 Last revised: 8 Mar 2020
Date Written: February 21, 2020
This paper shows that equity analysts exhibit in-group favoritism and have less-favorable views about firms headed by out-of-group CEOs. Using gender to identify group, we find that, compared with female analysts, male analysts have lower earnings forecasts and worse stock recommendations for firms headed by female CEOs than for firms headed by male CEOs. Consequently, earnings surprises for firms headed by female CEOs are upward biased. Results are similar when we define in-groups based on race/ethnicity or political attitudes. Examining market reaction around earnings announcements, we find that market participants do not compensate for this bias.
Keywords: In-group bias; analyst forecasts; gender bias; investor behavior; market reaction
JEL Classification: G02, G14, G24
Suggested Citation: Suggested Citation