The Effect of CEO Extraversion on Analyst Forecasts: Stereotypes and Similarity Bias

The Financial Review, 2019, Vol. 54, No. 1, pp. 133-164, doi.org/10.1111/fire.12173

57 Pages Posted: 7 Jun 2017 Last revised: 10 Jan 2019

See all articles by Jochen Becker

Jochen Becker

German Graduate School of Management and Law

Josip Medjedovic

German Graduate School of Management and Law

Christoph Merkle

Aarhus University

Multiple version iconThere are 2 versions of this paper

Date Written: November 1, 2017

Abstract

In an experiment with professional analysts, we study their reliance on CEO personality information when producing financial forecasts. Drawing on social cognition research, we suggest analysts apply a stereotyping heuristic believing that extraverted CEOs are more successful. The between-subjects results with CEO extraversion as treatment variable confirm that analysts issue more favorable forecasts (earnings per share, long-term earnings growth, and target price) for firms led by extraverted CEOs. Increased forecast uncertainty leads to even stronger stereotyping. Additionally, personality similarity between analysts and CEOs has a large effect on financial forecasts. Analysts issue more positive forecasts for CEOs similar to themselves.

Keywords: Financial analyst, CEO personality, nonfinancial information, stereotyping heuristic, similarity bias, extraversion

JEL Classification: G02, G24, M12

Suggested Citation

Becker, Jochen and Medjedovic, Josip and Merkle, Christoph, The Effect of CEO Extraversion on Analyst Forecasts: Stereotypes and Similarity Bias (November 1, 2017). The Financial Review, 2019, Vol. 54, No. 1, pp. 133-164, doi.org/10.1111/fire.12173. Available at SSRN: https://ssrn.com/abstract=2979343

Jochen Becker

German Graduate School of Management and Law ( email )

Bildungscampus 2
Heilbronn, 74076
Germany

Josip Medjedovic

German Graduate School of Management and Law ( email )

Bildungscampus 2
Heilbronn, 74076
Germany

Christoph Merkle (Contact Author)

Aarhus University ( email )

Nordre Ringgade 1
DK-8000 Aarhus C, 8000
Denmark

HOME PAGE: http://christophmerkle.github.io/

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