Biases

Paper Session

Friday, Jan. 6, 2017 10:15 AM – 12:15 PM

Sheraton Grand Chicago, Sheraton Ballroom II
Hosted By: American Finance Association
  • Chair: Renee Adams, University of New South Wales

In-Group Bias in Financial Markets

Sima Jannati
,
University of Miami
Alok Kumar
,
University of Miami
Alexandra Niessen-Ruenzi
,
University of Mannheim
Justin Wolfers
,
University of Michigan

Abstract

This paper investigates in-group bias in financial markets. Specifically, we argue that equity analysts may have less favorable opinions about firms that are not headed by CEOs of their own “group”. We define groups based on gender, ethnicity and political attitudes. Examining analysts’ earnings forecasts, we find that male analysts have lower assessments of firms headed by female CEOs than of firms headed by male CEOs. Results are very similar if in-groups are defined based on ethnicity or political attitudes: Earnings forecasts of domestic analysts are lower for firms headed by foreign CEOs and earnings forecasts of republican analysts are lower for firms headed by democrat CEOs. As a result, earnings surprises of firms headed by female, foreign, or democrat CEOs are systematically upward biased. Overall, our results provide robust evidence for ingroup-bias in financial markets.

Are CEOs Different? Characteristics of Top Managers

Steven Kaplan
,
University of Chicago
Morten Sorensen
,
Copenhagen Business School

Abstract

We use a data set of over 2,600 executive assessments to study thirty individual characteristics of candidates for top executive positions – CEO, CFO, COO and others. Candidate characteristics can be classified by four primary factors: general ability, execution skills, charisma and strategic skills. CEO candidates tend to score higher on all four of these factors; CFO candidates score lower. Hired candidates score higher than all assessed candidates on interpersonal skills (for each job category) suggesting that such skills are important in the selection process. Scores on the four factors also predict future career progression. Non-CEO candidates who score higher on the four factors are subsequently more likely to become CEOs. The patterns are qualitatively similar for public, private equity and venture capital owned companies. We do not find economically large differences in the four factors for men and women. Women, however, are ultimately less likely to become CEOs holding the four factors constant.

Experimenting With Entrepreneurship: The Effect of Job-Protected Leave

Joshua D. Gottlieb
,
University of British Columbia
Richard Townsend
,
Dartmouth College
Ting Xu
,
University of British Columbia

Abstract

Do potential entrepreneurs remain in wage employment because of the danger that they will face worse job opportunities should their entrepreneurial ventures fail? Using a Canadian reform that extended job-protected leave to one year for women giving birth after a cutoff date, we study whether the option to return to a previous job increases entrepreneurship. A regression discontinuity design reveals that longer job-protected leave increases entrepreneurship by 1.8 percentage points. The results are driven by more educated entrepreneurs, starting firms that survive at least five years and hire paid employees, in industries where experimentation is more valuable.
Discussant(s)
Harrison Hong
,
Columbia University
Laura Starks
,
University of Texas-Austin
Antoinette Schoar
,
Massachusetts Institute of Technology
JEL Classifications
  • G0 - General