Stock prices go up when firms hire Black CEOs, study says

HOBOKEN, N.J. — A team from Stevens Institute of Technology and the University of Georgia finds hiring a Black CEO can financially benefit companies. Study authors analyzed nearly 5,000 CEO hirings over the past two decades (2001-2020) and found average stock prices increased when companies announced the appointment of a Black CEO.

More specifically, the findings show that the average firm which appoints a Black CEO could see a boost of up to $44.6 million in market value in comparison to a similar firm hiring a white CEO.

What’s behind this trend?

Study authors have a few theories as to why this occurs.

“Our study suggests that Black CEOs face a higher bar for advancement than white CEOs as they climb the corporate ladder, resulting in Black CEOs being that much more prepared to lead the firm. For example, the Black CEOs in our study had more years of education, a greater number of advanced degrees, and a higher likelihood of being educated at elite universities,” says study co-author Ann Mooney Murphy, an associate professor in the Stevens School of Business, in a university release.

After controlling for various factors, researchers performed a series of analytical tests. The results showed the average cumulative abnormal return — the firm’s returns beyond expected normal market returns — was +3.1 percent among firms appointing a Black CEO. Those are notably higher financial gains in comparison to the -0.91 percent reaction to a sample of White CEOs.

Black individuals typically reach the top when they are ‘excessively qualified’

Interestingly, these results directly contradict the findings of a 2021 study that examined the financial impact of companies announcing the hiring of Black CEOs. While all of the data from this latest project is freely available to the public on the publishing journal’s website, the data used for that earlier study is not public.

“We’re glad to set the record straight. We believe the earlier study was flawed, and we were concerned that misreporting a decline in market value after Black CEOs’ appointments were announced might dissuade boards from hiring qualified individuals, thus worsening the under representation of Black corporate leaders,” explains study co-author Tim Quigley, a professor in the department of management at UGA’s Terry School of Business. “In the interest of transparency, we also make public the data underlying our results.”

In conclusion, study authors hope their work will help promote a more even hiring field for Black employees pursuing leadership positions. There are far fewer African-Americans in positions of corporate power in comparison to Caucasians; only 57 of the CEOs considered during the 20-year study period were Black.

“Some might view our study as all positive news. It’s not. While it is encouraging that markets recognize the strong qualities of Black CEOs, our study also suggests that firms seemingly appoint Black CEOs only when they are excessively qualified. Thus, we likely have Black executives who would do quite well who simply are never given the chance to lead an organization,” concludes lead study author Seung-Hwan Jeong, an assistant professor in the management department at UGA’s Terry College of Business.

The study is published in the Strategic Management Journal.

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