CEO nomination, gender and trading behavior

CEO Nomination, Gender and Trading Behavior: Evidence from Lab Experimental Simulations

Estefania Santacreu-Vasut ESSEC Business School

Prof. François Longin ESSEC Business School

We present below our latest research in Gender & Finance focusing on CEO nomination, gender and trading behavior.

CEO gender and market reaction

How do investors react to a new CEO’s gender when the firm announces his/her nomination? To answer this question, we build an experiment that allows us to study gender stereotypes in financial markets, which is one of the most male-dominated industries. This issue is important for society because a lack of female representation in leadership positions may result in higher gender inequality, inefficient talent allocation and lower economic growth.

In this paper, we extend the existing literature by adopting a two-sided approach to the gender dimension: we study both CEO and investor gender. Using experimental simulations in a controlled environment, we disaggregate the market reaction following the CEO appointment according to CEO and investor gender. On the CEO side, an experimental approach allows us to balance the proportion of male/female CEOs, which solves the statistical problems of previous studies (due to too few female CEOs in existing firms). On the investor side, it allows us to balance the proportion of male/female participants.

Research based on experimental simulations

To carry out our research, we use an on-line trading simulation platform called SimTrade. We build a trading simulation where participants trade their portfolio (cash and stocks) on a particular company and react to the news flow, which is a series of events about the company, its sector and the economy. We introduce a gender-related event: the announcement of the next CEO, either a man or a woman. By randomizing the CEO gender at the launch of the simulation, we can identify the trading reactions of participants following the CEO announcement according to his/her gender. Participants’ trading decisions to buy or sell stocks signals their beliefs or expectations regarding the new CEO’s impact on future firm performance.

The experiment was carried out in ESSEC research lab, a facility designed for conducting experiments in a controlled environment. Participants in the experiment were recruited from the Financial Management course at ESSEC Business School.

CEO nomination ESSEC experimental lab
Participants in ESSEC experimental lab

 

Research based on experimental simulations

We find that when a female CEO is nominated, female participants perceive this event as good news as they tend to buy stocks, while male participants perceive it as bad news as they tend to sell stocks. The opposite behavior is observed when a male CEO is nominated: female participants perceive this event as bad news as they tend to sell stocks, while male participants perceive it as good news as they tend to buy stocks. Overall, these results show that investors’ reactions to CEO gender may depend on their own gender. We interpret this finding as gender homophily, a sociological concept meaning that individuals prefer to interact with individuals of their own type.


Trading behavior after the announcement of the next CEO

 

You can download the PowerPoint presentation and research article below.

Presentation on gender and finance
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