Market Reaction to Female CEO'sPublished: November 03, 2004 in Knowledge@Emory
One look around the boardrooms of America’s top corporations, and it is clear that men still dominate the top spot of CEO. According to Catalyst, a nonprofit research and advisory organization working to advance women in business, as of October 2003, eight women held the CEO spot at Fortune 500 companies and a total of 17 women occupied the position at Fortune 1000 firms. Women CEOs, from Patricia Russo of Lucent Technologies, Carly Fiorina of Hewlett Packard, Andrea Jung of Avon Products, and Meg Whitman of eBay, stand out among their male counterparts, and in turn, may face a higher level of scrutiny.
Despite advancement by a few well-known women, many note that the “glass ceiling” and discriminatory practices do continue, and can be blamed for the paucity of women in top management posts. The token status of women CEOs serves to intensify the attention that they face from stockholders, the media and others. It’s been suggested that the very public and sometimes negative reaction received by Hewlett Packard CEO Carly Fiorina during the acquisition of Compaq Computer came as a result of the heightened scrutiny afforded women in top management spots.
Now, Peggy M. Lee, assistant professor of organization and management at Emory University’s Goizueta Business School, along with co-author Erika Hayes James, associate professor of business administration at the University of Virginia’s Darden School of Business Administration, tackle this issue in their research paper titled “Gender Effects and Stock Price Reactions to the Announcements of Top Executive Appointments.” The authors analyzed a company’s stock price change after the announcement of the appointment of a women CEO. Lee and James argue, “the status differences accorded to men and women, coupled with the infrequency with which women are named to executive positions, make gender a salient characteristic that deserves empirical attention.”
Their research consisted of a sample of 1,624 unique announcements of top executives at U.S. publicly traded companies (including CEO, CFO, COO, president, and executive vice president)—information taken from the Wall Street Journal and other newspapers, newswires, and press releases from January 1, 1990 to December 31, 2000. Of the announcements, 529 were CEO appointments. The authors use factors such as gender, industry or company insider, previous position, and prior company performance as relevant variables, and note that investors react differently to CEO successions prompted by poor company performance versus a situation of natural succession. U.S. stock price data came from tapes provided by the Center for Research in Securities Prices of the University of Chicago.
Lee and James hypothesize that the appointment of a new CEO creates a feeling of uncertainty for investors, and the appointment of a woman CEO heightens that uncertainty, as the business world remains dominated by male CEOs. Past research indicates that since women CEOs are so few and far between, their token status seems to result in enhanced scrutiny and skepticism of their performance. As well, “perceived competence” appears to be influenced by the status of women in general, and stereotypical thoughts on how women should perform in their role—and those thoughts often remain inconsistent with a leadership position.
However, the hard data collected indicates there is little difference between the women and male executives sampled, short of their gender. The mean age of female CEOs, 47.25 years, did not differ greatly from that of the male CEOs—49.06 years. The paper also notes the mean ages of TMT (the top management team) appointments for women (41.64 years) and men (45.65 years). For male and female appointments, more than half consisted of promotions from within the same firm, and about three-quarters were from within the same industry.
The authors’ research indicates that shareholders “respond more negatively to the announcement of female CEO appointments than to male CEO appointments,” measuring a subsequent stock price drop significantly greater after female CEO appointments than for their male counterparts. (The data indicated a three-day cumulative stock price percentage drop of -2.47 mean for the announcement of a female CEO, versus a -0.50 mean percentage drop for the male CEOs over a similar period.) Interestingly, the reaction remained more negative to “female CEO appointments than to female appointments in top management appointments other than CEO, and less negatively to women who are promoted to the CEO position from within the firm than to those who are promoted externally.”
Lee and James note that while “some may interpret the findings described above as disturbing, there may be reason for optimism regarding the public’s perception of female leadership.” They suggest that over time, as an increasing number of women are named CEO, these appointments should receive less negative attention. Additionally, the research shows that “negative reaction to female CEO appointments is moderated by company experience.” In essence, female insiders, or those women promoted from within the ranks of the company, received a more favorable response than those considered to be outsiders.
However, the authors concede that future research based on a more longitudinal study that tracks stock market reactions or other firm performance indicators, as the number of women in senior leadership positions increase, would continue to provide a window into the acceptance of female CEOs. For now though, Lee and James provide important research that goes beyond mere generalization, bridging “what, to date, have been disparate bodies of research by linking theoretical assumptions from the strategic management and social psychological literatures.”