The Rodney L. White Center for Financial Research Diagnosing Discrimination: Stock Returns and CEO Gender

A vast labor literature has found evidence of a “glass ceiling”, whereby women are under-represented among senior management. A key question remains the extent to which this reflects unobserved differences in productivity, preferences, prejudice, or systematically biased beliefs about the ability of female managers. Disentangling these theories would require data on productivity, on the preferences of those who interact with managers, and on perceptions of productivity. Financial markets provide continuous measures of the market’s perception of the value of firms, taking account of the beliefs of market participants about the ability of the men and women in senior management. As such, financial data hold the promise of potentially providing insight into the presence of mistake-based discrimination. Specifically if female-headed firms were systematically under-estimated, this would suggest that female-headed firms would outperform expectations, yielding excess returns. Examining data on S&P 1500 firms over the period 1992-2004 I find no systematic differences in returns to holding stock in femaleheaded firms, although this result reflects the weak statistical power of our test, rather than a strong inference that financial markets either do or do not under-estimate female CEOs. JEL Codes: G14, G3, J16, J4, J7, K31, M5 Acknowledgements: I would like to thank Marianne Bertrand, Alessandra Fogli, Larry Katz, Ulrike Malmendier, Paul Oyer, Joshua Pollet, Stephen Ross, Betsey Stevenson, Geoffrey Tate, Stefano Della Vigna, Grace Wong and Eric Zitzewitz for their valuable input, and Brett Danaher and Brandon Verblow for outstanding research assistance. Thanks also to seminar audiences at the NBER Labor Studies Summer Institute, Society of Labor Economists, the European Summer Symposium in Labor Economics, and the European Economics Association annual conference. Wolfers is also affiliated with CEPR, IZA and the NBER. The financial assistance of a Geewax, Terker and Company Research fellowship and the support of the Zull/Lurie Real Estate Center are gratefully acknowledged.