Diagnosing Discrimination: Stock Returns and CEO Gender

19 Pages Posted: 30 Jan 2006

See all articles by Justin Wolfers

Justin Wolfers

University of Michigan at Ann Arbor - Department of Economics; University of Michigan at Ann Arbor - Gerald R. Ford School of Public Policy; The University of Sydney - Discipline of Economics; Brookings Institution - Economic Studies Program; Peter G. Peterson Institute for International Economics; National Bureau of Economic Research (NBER); IZA Institute of Labor Economics; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute); Kiel Institute for the World Economy

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Date Written: January 2006

Abstract

A vast labor literature has found evidence of a "glass ceiling," whereby women are under-represented among senior management. A key question remains the extent to which this reflects unobserved differences in productivity, preferences, prejudice, or systematically biased beliefs about the ability of female managers. Disentangling these theories would require data on productivity, on the preferences of those who interact with managers, and on perceptions of productivity. Financial markets provide continuous measures of the market's perception of the value of firms, taking account of the beliefs of market participants about the ability of the men and women in senior management. As such, financial data hold the promise of potentially providing insight into the presence of mistake-based discrimination. Specifically if female-headed firms were systematically under-estimated, this would suggest that female-headed firms would outperform expectations, yielding excess returns. Examining data on S&P 1500 firms over the period 1992-2004 I find no systematic differences in returns to holding stock in female-headed firms, although this result reflects the weak statistical power of our test, rather than a strong inference that financial markets either do or do not under-estimate female CEOs.

Keywords: discrimination, CEOs, chief executive officer, event study, statistical discrimination, excess returns, female CEOs

JEL Classification: G14, G3, J16, J4, J7, K31, M5

Suggested Citation

Wolfers, Justin, Diagnosing Discrimination: Stock Returns and CEO Gender (January 2006). IZA Discussion Paper No. 1944. Available at SSRN: https://ssrn.com/abstract=879756

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