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Do sell-side analysts react too pessimistically to bad news for minority-led firms? Evidence from target price valuations

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  • Rupar, Kathy
  • Wang, Sean
  • Yoon, Hayoung

Abstract

We find that the adverse impact of bad news on analysts’ valuations is 57% larger when the CEO is Non-White, resulting in more pessimistic valuations for Non-White CEOs relative to their White counterparts. Non-White CEO firms are more likely to surpass analysts’ valuation targets in the subsequent 12 months, suggesting that this racial gap lacks economic justification. To provide further evidence of a racial bias: (1) we triangulate our empirical findings with corroborating evidence from a controlled experiment and (2) we provide evidence that analysts’ valuation disparities towards Non-White CEO firms become larger when race relations are worse. Increases in CEO familiarity attenuate these disparities, suggesting the bias we document appears to be subconscious. Our findings suggest that resources allocated towards educating a firm’s stakeholders about the potential impact of implicit racial biases and increasing self-awareness may be impactful in promoting equality within capital markets.

Suggested Citation

  • Rupar, Kathy & Wang, Sean & Yoon, Hayoung, 2025. "Do sell-side analysts react too pessimistically to bad news for minority-led firms? Evidence from target price valuations," Journal of Accounting and Economics, Elsevier, vol. 79(1).
    • Handle: RePEc:eee:jaecon:v:79:y:2025:i:1:s0165410124000375
    DOI: 10.1016/j.jacceco.2024.101707
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    More about this item

    Keywords

    Racial discrimination; Financial analyst; Valuation; CEO; Earnings announcement; Target price;
    All these keywords.

    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • J71 - Labor and Demographic Economics - - Labor Discrimination - - - Hiring and Firing

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