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A Corporate Beauty Contest

Author

Listed:
  • John R. Graham

    (Fuqua School of Business, Duke University, Durham, North Carolina 27708; and National Bureau of Economic Research, Cambridge, Massachusetts 02912)

  • Campbell R. Harvey

    (Fuqua School of Business, Duke University, Durham, North Carolina 27708; and National Bureau of Economic Research, Cambridge, Massachusetts 02912)

  • Manju Puri

    (Fuqua School of Business, Duke University, Durham, North Carolina 27708; and National Bureau of Economic Research, Cambridge, Massachusetts 02912)

Abstract

We provide new evidence that the subjective “look of competence” rather than beauty is important for CEO selection and compensation. Our experiments, studying the facial traits of CEOs using nearly 2,000 subjects, link facial characteristics to both CEO compensation and performance. In one experiment, we use pairs of photographs and find that subjects rate CEO faces as appearing more “competent” than non-CEO faces. Another experiment matches CEOs from large firms against CEOs from smaller firms and finds large-firm CEOs look more competent. In a third experiment, subjects numerically score the facial traits of CEOs. We find competent looks are priced into CEO compensation, more so than attractiveness. Our evidence suggests this premium has a behavioral origin. First, we find no evidence that the premium is associated with superior performance. Second, we separately analyze inside and outside CEO hires and find that the competence compensation premium is driven by outside hires—the situation where first impressions are likely to be more important.

Suggested Citation

  • John R. Graham & Campbell R. Harvey & Manju Puri, 2017. "A Corporate Beauty Contest," Management Science, INFORMS, vol. 63(9), pages 3044-3056, September.
    • Handle: RePEc:inm:ormnsc:v:63:y:2017:i:9:p:3044-3056
    DOI: 10.1287/mnsc.2016.2484
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    References listed on IDEAS

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    1. Markus M. Mobius & Tanya S. Rosenblat, 2006. "Why Beauty Matters," American Economic Review, American Economic Association, vol. 96(1), pages 222-235, March.
    2. Nicholas Barberis & Abhiroop Mukherjee & Baolian Wang, 2016. "Prospect Theory and Stock Returns: An Empirical Test," The Review of Financial Studies, Society for Financial Studies, vol. 29(11), pages 3068-3107.
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    More about this item

    Keywords

    first impressions; thin slicing; CEO selection; competence; likable; trustworthy; attractive; facial traits; CEO compensation; CEO performance; behavioral economics; behavioral finance;
    All these keywords.

    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance

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