A Corporate Beauty Contest

This post comes to us from John Graham, Professor of Finance at Duke University, Campbell Harvey, Professor of International Business at Duke University, and Manju Puri, Professor of Finance at Duke University.

In the paper, A Corporate Beauty Contest, which was recently made publicly available on SSRN, we investigate whether there is any relation between facial traits and rising to the job title of CEO. Our results, based upon a series of experiments involving close to 2,000 subjects, suggest there is a significant relation.

Our first experiment tests to see whether subjects evaluate the facial traits of CEOs to be different when showed a photograph of the CEO and a carefully matched non-CEO. We ask the subjects to select the one that looks the most “competent”, “trustworthy”, “likable”, and “attractive”. In this experiment, we find that CEOs are perceived to be more competent and slightly more attractive. The CEOs are considered less likable and less trustworthy.

Our second experiment tests whether subjects ascribe different facial characteristics to CEOs who run large versus small firms. This separation is important because we know that large firm CEOs earn much higher compensation. The strongest results are consistent with the first experiment. The large-firm CEOs are perceived to be more competent and less likable.

In addition, to picking among a pair of photos, the subjects numerically score the facial traits of CEOs. This allows us to directly examine whether these quantitative scores are related to executive compensation. Our results show a highly statistically significant relation between competence, likeability and executive compensation. When we control for the CEO’s pay relative to prior CEO, after controlling for firm size and industry, we find that competence is significantly related to the CEO’s pay. All other facial traits are insignificant.

Are competent looking CEOs actually more competent? We examine the performance of the firms run by CEOs to see if facial attributes are related to performance, by running regressions similar to the ones for CEO compensation. We find no evidence that competent looking CEOs demonstrate better firm performance.

Finally, we explore possible reasons for the subjects’ perception of these four facial traits. Following the psychology literature, we quantitatively evaluate the “baby-facedness” of the CEOs. We find that the maturity of the facial appearance is significantly related to perceptions of competence and likeability. Our results are concerning particularly in the light of our findings that there is no relationship between competent looks of the CEO and firm performance. This also relates to the psychology literature which finds that people that are “baby-faced” are often more intelligent and possess other actual characteristics that are at odds to those projected by facial traits. In other words, baby-faced individuals may actually be more able, on average, than the rest of the population. Yet, our corporate beauty contest suggests that the “baby-faced” subjects are less likely to be CEOs and less likely to be large company CEOs.

The full paper is available for download here.

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