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
Date Written: November 1, 2017
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
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