They say that beauty is in the eye of the beholder, and it just might be that beauty is also in the eye of the shareholder.
Joseph Halford and Hung-Chia Hsu, two economists at the University of Wisconsin, say that one way to increase a company’s stock price is to hire a hot or hunky CEO.
Yes, just when you thought that our society could not get more superficial, it does.
While it has been shown that the good-lookers in the CEO crowd earn bigger paychecks, in "Beauty is Wealth: CEO Appearance and Shareholder Value" Halford and Hsu found a link between attractiveness and company profitability after examining the looks of 677 people who served as CEOs of S&P 500 companies between 2000 and 2012 and the performance of their companies' stocks at various points.
“Overall, our findings suggest that more attractive CEOs receive higher compensation for a reason: They create value for shareholders through better negotiating power and visibility,” Halford says.
Halford and Hsu used a Facial Attractiveness Index (FAI) that assesses aspects of facial geometry (something long linked to universal standards of beauty). They then compared these scores to various measures of stock performance and compensation, and came up with four main conclusions:
• Halford and Hsu confirm prior research, which shows that more attractive CEOs receive higher total compensation than their less attractive peers. This pay difference is called the "beauty premium."
• Stocks rise when attractive CEOs start their jobs. "We find that FAI has a positive and significant impact on stock returns surrounding the first day when the CEO is on the job, indicating that shareholders seem to perceive more attractive CEOs to be more valuable," the economists write.
• Attractive CEOs get larger surpluses from merger and acquisition deals. Halford and Hsu say this finding is linked to the idea that attractive CEOs are more persuasive negotiators. This allows them to negotiate greater surpluses during M&A transactions and see greater stock returns when the deals are announced.
• Stocks also rise if the company's attractive CEO appears on TV. “If visibility is an important determinant of stock prices, firms may hire more attractive CEOs…to help enhance firm image.”
They say their findings “shed light on how the appearance of corporate insiders affects corporate decisions and outcomes. It is well established in the asset pricing literature that investors’ decisions are likely based on initial, possibly unconscious, impressions and perceptions.”
It is also said that beauty is skin deep, so perhaps we should consider something deeper than the “facial geometry” of our CEOs.
Image credit: Flickr/johnparker2012