IDEAS home Printed from https://ideas.repec.org/a/bla/stratm/v44y2023i7p1733-1752.html
   My bibliography  Save this article

How do investors really react to the appointment of Black CEOs?

Author

Listed:
  • Seung‐Hwan Jeong
  • Ann Mooney
  • Yangyang Zhang
  • Timothy J. Quigley

Abstract

Research Summary A recent study found that markets react negatively to the appointment of Black CEOs, with an average cumulative abnormal return of −4.2%. The authors argue this is caused by investors invoking racial biases and stereotypes. In contrast, using a comparable sampling period and analytic approach, we find markets react positively to the appointment of Black CEOs with an average abnormal return of +3.1% (or +2.0% after conservatively addressing outliers). Our results are consistent across several alternative analyses, sample adjustments, and robustness tests. We argue racial biases and stereotypes in markets are outweighed by investor appreciation for the higher bar for advancement that Black CEOs face and the exceptional attributes they must exhibit as a result. To conclude, we discuss the implications of our findings. Managerial Summary A recent study found that markets react negatively (−4.2%) to the appointment of Black CEOs which the authors attribute to racial biases and stereotypes among market participants. If true, boards might be dissuaded from making such appointments out of concern for the firm's stock price and their own shareholdings. Using a comparable sample, we find the opposite with an average return of +3.1% for the appointment of Black CEOs. We argue biases and stereotypes are outweighed by investor appreciation for the higher bar for advancement that Black CEOs face. Specifically, we show Black CEOs are appointed with, on average, more years of education, advanced degrees, and elite education than a comparable group of White CEOs. We share data and code underlying our primary results.

Suggested Citation

  • Seung‐Hwan Jeong & Ann Mooney & Yangyang Zhang & Timothy J. Quigley, 2023. "How do investors really react to the appointment of Black CEOs?," Strategic Management Journal, Wiley Blackwell, vol. 44(7), pages 1733-1752, July.
  • Handle: RePEc:bla:stratm:v:44:y:2023:i:7:p:1733-1752
    DOI: 10.1002/smj.3454
    as

    Download full text from publisher

    File URL: https://doi.org/10.1002/smj.3454
    Download Restriction: no

    File URL: https://libkey.io/10.1002/smj.3454?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Richard A. Bettis & Constance E. Helfat & J. Myles Shaver & Richard A. Bettis & Constance E. Helfat & J. Myles Shaver, 2016. "The necessity, logic, and forms of replication," Strategic Management Journal, Wiley Blackwell, vol. 37(11), pages 2193-2203, November.
    2. Yan Zhang & Margarethe F. Wiersema, 2009. "Stock market reaction to CEO certification: the signaling role of CEO background," Strategic Management Journal, Wiley Blackwell, vol. 30(7), pages 693-710, July.
    3. Sendil K. Ethiraj & Alfonso Gambardella & Constance E. Helfat, 2017. "Improving Data Availability: A New SMJ Initiative," Strategic Management Journal, Wiley Blackwell, vol. 38(11), pages 2145-2146, November.
    4. Timothy J. Quigley & Craig Crossland & Robert J. Campbell, 2017. "Shareholder perceptions of the changing impact of CEOs: Market reactions to unexpected CEO deaths, 1950–2009," Strategic Management Journal, Wiley Blackwell, vol. 38(4), pages 939-949, April.
    5. Cook, Lisa D. & Logan, Trevon D. & Parman, John M., 2016. "The mortality consequences of distinctively black names," Explorations in Economic History, Elsevier, vol. 59(C), pages 114-125.
    6. Richard A. Bettis & Constance E. Helfat & J. Myles Shaver & Emilie R. Feldman & Raphael(Raffi) Amit & Belén Villalonga, 2016. "Corporate divestitures and family control," Strategic Management Journal, Wiley Blackwell, vol. 37(11), pages 2389-2389, November.
    7. Christopher D. DeSante, 2013. "Working Twice as Hard to Get Half as Far: Race, Work Ethic, and America’s Deserving Poor," American Journal of Political Science, John Wiley & Sons, vol. 57(2), pages 342-356, April.
    8. Paul M. Guest, 2017. "Executive Compensation and Ethnic Minority Status," Industrial Relations: A Journal of Economy and Society, Wiley Blackwell, vol. 56(3), pages 427-458, July.
    9. Richard A. Bettis & Constance E. Helfat & J. Myles Shaver & Sendil K. Ethiraj & Alfonso Gambardella & Constance E. Helfat, 2016. "Replication in strategic management," Strategic Management Journal, Wiley Blackwell, vol. 37(11), pages 2191-2192, November.
    10. Marianne Bertrand & Sendhil Mullainathan, 2004. "Are Emily and Greg More Employable Than Lakisha and Jamal? A Field Experiment on Labor Market Discrimination," American Economic Review, American Economic Association, vol. 94(4), pages 991-1013, September.
    11. Richard J. Gentry & Joseph S. Harrison & Timothy J. Quigley & Steven Boivie, 2021. "A database of CEO turnover and dismissal in S&P 1500 firms, 2000–2018," Strategic Management Journal, Wiley Blackwell, vol. 42(5), pages 968-991, May.
    12. Wei Shen & Albert A. Cannella,, 2003. "Will succession planning increase shareholder wealth? evidence from investor reactions to relay CEO successions," Strategic Management Journal, Wiley Blackwell, vol. 24(2), pages 191-198, February.
    13. Emilie R. Feldman & Raphael(Raffi) Amit & Belén Villalonga, 2016. "Corporate divestitures and family control," Strategic Management Journal, Wiley Blackwell, vol. 37(3), pages 429-446, March.
    14. Aaron D. Hill & Arun D. Upadhyay & Rafik I. Beekun, 2015. "Do female and ethnically diverse executives endure inequity in the CEO position or do they benefit from their minority status? An empirical examination," Strategic Management Journal, Wiley Blackwell, vol. 36(8), pages 1115-1134, August.
    15. David M. Gligor & Millorad Novicevic & Javad Feizabadi & Andrew Stapleton, 2021. "Examining investor reactions to appointments of Black top management executives and CEOs," Strategic Management Journal, Wiley Blackwell, vol. 42(10), pages 1939-1959, October.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Naciye Sekerci & Jamil Jaballah & Marc van Essen & Nadine Kammerlander, 2022. "Investors’ Reactions to CSR News in Family Versus Nonfamily Firms: A Study on Signal (In)credibility," Entrepreneurship Theory and Practice, , vol. 46(1), pages 82-116, January.
    2. Markku Maula & Wouter Stam, 2020. "Enhancing Rigor in Quantitative Entrepreneurship Research," Entrepreneurship Theory and Practice, , vol. 44(6), pages 1059-1090, November.
    3. Manuel Becerra & Garen Markarian & Juan Santalo, 2020. "The effect of import competition on product diversification revisited," Strategic Management Journal, Wiley Blackwell, vol. 41(11), pages 2126-2152, November.
    4. Mike W. Peng & Wei Sun & Cristina Vlas & Alessandro Minichilli & Guido Corbetta, 2018. "An Institution-Based View of Large Family Firms: A Recap and Overview," Entrepreneurship Theory and Practice, , vol. 42(2), pages 187-205, March.
    5. Bu, Maoliang & Xu, Liang & Tang, Ryan W., 2023. "MNEs’ transfer of socially irresponsible practices: A replication with new extensions," Journal of World Business, Elsevier, vol. 58(2).
    6. Hensel, Przemysław G., 2019. "Supporting replication research in management journals: Qualitative analysis of editorials published between 1970 and 2015," European Management Journal, Elsevier, vol. 37(1), pages 45-57.
    7. Rockstuhl, Thomas & Van Dyne, Linn, 2018. "A bi-factor theory of the four-factor model of cultural intelligence: Meta-analysis and theoretical extensions," Organizational Behavior and Human Decision Processes, Elsevier, vol. 148(C), pages 124-144.
    8. Javier Parra-Domínguez & Fátima David & Tania Azevedo, 2021. "Family Firms and Coupling among CSR Disclosures and Performance," Administrative Sciences, MDPI, vol. 11(1), pages 1-13, March.
    9. Lorenzo Ardito & Antonio Messeni Petruzzelli & Federica Pascucci & Enzo Peruffo, 2019. "Inter‐firm R&D collaborations and green innovation value: The role of family firms' involvement and the moderating effects of proximity dimensions," Business Strategy and the Environment, Wiley Blackwell, vol. 28(1), pages 185-197, January.
    10. Niron Hashai & Sarit Markovich, 2017. "Market Entry by High Technology Startups: The Effect of Competition Level and Startup Innovativeness," Strategy Science, INFORMS, vol. 2(3), pages 141-160, September.
    11. Byun, SeongK. & Fuller, Kathleen & Lin, Zhilu, 2021. "The costs and benefits associated with inventor CEOs," Journal of Corporate Finance, Elsevier, vol. 71(C).
    12. Yangyang Qi & Jiong Wu, 2023. "Performance feedback, succession process and innovative activities of family firms: evidence from China," Asian Business & Management, Palgrave Macmillan, vol. 22(2), pages 765-791, April.
    13. Stephen J. Smulowitz & Horacio E. Rousseau & Philip Bromiley, 2020. "The behavioral theory of the (community‐oriented) firm: The differing response of community‐oriented firms to performance relative to aspirations," Strategic Management Journal, Wiley Blackwell, vol. 41(6), pages 1023-1053, June.
    14. Sara L. McGaughey & Pascalis Raimondos & Lisbeth La Cour, 2018. "What is a Foreign Firm? Implications for Productivity Spillovers," CESifo Working Paper Series 7109, CESifo.
    15. Cook, Lisa D. & Logan, Trevon D. & Parman, John M., 2014. "Distinctively black names in the American past," Explorations in Economic History, Elsevier, vol. 53(C), pages 64-82.
    16. Christopher Kurzhals & Lorenz Graf‐Vlachy & Andreas König, 2020. "Strategic leadership and technological innovation: A comprehensive review and research agenda," Corporate Governance: An International Review, Wiley Blackwell, vol. 28(6), pages 437-464, November.
    17. Hillebrand, Sebastian & Teichert, Thorsten, 2020. "Successor selection in times of continuity and renewal - A discrete choice-experiment," WiSo-HH Working Paper Series 59, University of Hamburg, Faculty of Business, Economics and Social Sciences, WISO Research Laboratory.
    18. Peng Wang & Bin Liu & Andrew Delios & Gongming Qian, 2023. "Two-sided effects of state equity: The survival of Sino–foreign IJVs," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 54(1), pages 107-127, February.
    19. Ding, Yang, 2021. "Antecedents and implications of legacy divestitures," Other publications TiSEM f4d5766f-6a5b-43a3-94df-1, Tilburg University, School of Economics and Management.
    20. Nguyen, Pascal & Rahman, Nahid & Zhao, Ruoyun, 2013. "Ownership structure and divestiture decisions: Evidence from Australian firms," International Review of Financial Analysis, Elsevier, vol. 30(C), pages 170-181.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:stratm:v:44:y:2023:i:7:p:1733-1752. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://onlinelibrary.wiley.com/journal/10.1111/0143-2095 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.