SHE’-E-Os: Gender Effects and Investor Reactions to the Announcements of Top Executive Appointments
“SHE’-E-Os: Gender Effects and Investor Reactions to the Announcements of Top Executive Appointments,” by Peggy M. Lee and Erika Hayes James, is a study that explores the relationship between announcements of CEO appointments and investor reactions, and particularly the influence of CEO gender on that relationship.
Women managers increased in number from 18% in 1972 to 45% in 2000. Despite this advancement, the glass ceiling still exists; women are underrepresented in top executive positions. As a result of this gender gap, women are seen as anomalies in these roles.
The authors cited Kanter’s token status theory, which examined gender and stereotypes at work. “Token status” referred to the public perception of women in management at a time when women were a numerical minority in such positions. The consequences of token status were detrimental and included negative biases and stereotypes of the capability of women to hold management positions. Because men typically have held leadership roles in companies, a gender role expectation exists. The public perception is that women are less qualified to be executives. Over the years, the effects of token status for women in low and mid-level management positions have waned primarily as a result of the increasing number of women filling these roles.
In recent years, however, women have been appointed to top management positions, including CEO to such prominent companies as Lucent Technologies, Hewlett Packard, Avon Products, and eBay. As more women rise to the executive level, the need for research about demographic diversity and its effect at the firm level grows.
Based on this information, the researchers formed several hypotheses:
- Stock market reactions will be more negative to the appointments of female CEOs than to male CEOs.
- More publicity will be generated about the appointments of female CEOs than those of male CEOs.
- The publicity for newly appointed CEOs will emphasize gender for women CEO appointments more than it will for male CEO appointments.
- Stock market reactions will be less negative for appointments of women to top management team positions than to CEO positions.
- Male and female appointments to top management teams will be perceived about the same.
- Reactions to announcements of women CEOs will be less negative for those promoted to CEO from inside the company than for outsiders.
Using a sample of CEO announcements from 1990 to 2000, the research examined investor reactions. Important variables such as previous performance, or the net income divided by sales in the year prior to the appointment, were considered when looking at the results. The authors found that gender is statistically significant; stock market reactions to women CEO appointments were more negative than the market reactions when men are appointed CEO. However, although investor reactions were negative for appointments of women insiders to CEO positions, they were less negative than reactions to those of women appointed from the outside.
In addition, the study analyzed articles on specific CEOs for the year following their appointments. It looked at differences in the language journalists used to describe the newly appointed male and female executives, and how the media shape expectations for the market.
The authors concluded that all of their theories were supported by significant results except for the one positing that more articles would appear about the appointments of female CEOs. The most striking findings are that stock in a company drops after the announcement of a female CEO, but not after that of a male CEO, and that journalists reference gender more when writing about women executives than they do when writing about men.
The importance of this study is that it innovatively uses empirical evidence to show how gender influences the perception of leadership ability. It also establishes a link between demographic diversity and the stock price of a firm.
To request a copy of the full journal article as posted in the Strategic Management Journal, please contact Erika at www.erikahayesjames.com/contact/.
May 5th, 2009 at 9:13 pm
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