Race, Gender, and Investor Evaluations of Firms and CEOs

Abstract

Using an experimental design, we examine whether CEO race and CEO gender affect investors’ willingness to invest in a company, their forecasts of future performance, and their evaluations of CEO performance, when given narrative and financial information about a firm. We deliberately avoid triggering race and gender stereotypes, in order to strengthen external validity. We collect data from a diverse group of participants and examine whether race- and gender-effects differ based on participant characteristics. We find that participants are significantly less likely to invest in the Black-CEO led company than the white-CEO led company, consistent with race-based implicit biases regarding leadership. Contrary to expectations, we find that participants are more likely to invest in the female-CEO led company than the male-led company. Both of these results are primarily driven by a low willingness to invest in firms led by Black male CEOs. This low willingness to invest in Black male led firms occurs in data collected from a diverse public University and from private historically white institutions but is absent in the data from Historically Black Colleges and Universities. Additional analyses exploiting participant race and gender suggest that both results are driven in part by in-group biases: White participants are more likely to prefer white CEOs, while female participants are more likely to prefer female CEOs.

Keywords: race, gender, investor judgement, CEO characteristics, implicit bias, in-group bias

JEL Classification: G41, D91, M41