Stock Market Reaction to Female CEO Nominations: Is the Market Gendered?

Abstract

Stock markets react negatively to the nomination of female CEOs. Recent research has argued that this may reflect the investors’ negative perception about female leadership and media reporting that is biased against women. In this paper, we propose a new explanation based on the hypothesis that the market is ‘gendered’. As female and male market participants may exhibit differences in preferences and in biases towards gender, gender diversity in the financial sector potentially impacts the market outcomes. To test this hypothesis, we run a simulation-based lab experiment in which female and male participants trade stocks of a company in response to the nomination of its future CEO, who could be either a man or a woman. We find that when a female CEO is appointed, the female participants’ perception is positive (they buy stocks), while the male participants’ perception is negative (they sell stocks). The opposite result holds when a male CEO is appointed. We interpret our findings drawing from homophily, entitativity and expectation theories. The policy implication of our study is that the gender issue is not only an issue reflected at the corporate level in the need to nominate more female CEOs but also an issue at the financial industry level related to the need to increase gender diversity by attracting more women in investment occupations; finally it is an issue at the societal level related to the need to change individual and collective stereotypes about female leadership.

Keywords: CEO nomination, diversity, gender stereotypes, entitativity, homophily, leadership

JEL Classification: J16, M14