The Effect of CEO Extraversion on Analyst Forecasts: Stereotypes and Similarity Bias
Published in The Financial Review, 2019
Recommended citation: Becker, Jochen, Josip Medjedovic and Christoph Merkle. (2019). "The Effect of CEO Extraversion on Analyst Forecasts: Stereotypes and Similarity Bias." The Financial Review. 54(1), 133-164.
In an experiment with professional analysts, we study their reliance on CEO personality information when producing financial forecasts. Drawing on social cognition research, we suggest analysts apply a stereotyping heuristic, believing that extraverted CEOs are more successful. The between‐subjects results with CEO extraversion as treatment variable confirm that analysts issue more favorable forecasts (earnings per share, long‐term earnings growth, and target price) for firms led by extraverted CEOs. Increased forecast uncertainty leads to even stronger stereotyping. Additionally, personality similarity between analysts and CEOs has a large effect on financial forecasts. Analysts issue more positive forecasts for CEOs similar to themselves.
JEL codes: G02, G24, M12.
Keywords: Financial Analyst, CEO Personality, Nonfinancial Information, Stereotyping Heuristic, Similarity Bias, Extraversion.