Darden Professor Investigates Gendered Market Effects

Sept. 19, 2007 -- In the last few decades, women’s status in the workplace has steadily improved in the U.S.  Women are moving into management positions at a rate that is almost equal to that of men. Yet a glass ceiling still hinders women’s progression into the highest executive posts. In 2007, according to Fortune magazine, only 13 of the top 500 companies were headed by women.

Erika James, Bank of America Associate Professor of Business Administration and associate dean for diversity at the Darden School, is asking questions about issues surrounding women’s advancement into senior-level corporate positions. She recently published an article in Strategic Management Journal regarding the influence of female-CEO hiring announcements on stock prices.

James and her co-author, Peggy Lee, a faculty member at Arizona State University, compiled hiring announcements and stock market data from 1990-2000. They looked at company share prices the day before the announcement, as well as the day of, and the day after.

“What we found is that when an announcement for a female CEO is made, the market reacts strongly and negatively with a drop in the price of the company’s stock,” says James. “We don’t find the same drop with male hires.”

In addition, James notes that the way that CEO appointments are reported by the popular media differs between male and female hires. She found that the articles placed much more attention on gender, femininity and family when writing about women. “A woman appointed as a CEO is such a novel thing,” says James. "Of course that is what the media is going to focus on — it’s a natural tendency. But this tendency has consequences that people don’t know about.”

James explains that the position of CEO is viewed as a stereotypically masculine role. “The appointment of a woman counters the perceptual biases of the type of person who should hold the role of CEO,” says James. “There is a general notion that hiring women is more of a risk.”

The study demonstrated that hiring women from within a company, as opposed to external hires, did not trigger the same negative response, suggesting that prior knowledge of candidates influences perceptions. James recommends that companies heed these findings when preparing internal and external communications about new CEO appointments. Companies may be able to avoid some of the negative market consequences by proactively emphasizing a candidate’s best abilities to their stakeholders.

James’ research also has found the total compensation packages of female CEOs to be less than that of their male counterparts. Now she and Arizona State University colleagues Lee and Christine Shropshire are looking more carefully at the strategies men and women use in negotiating compensation as well as other factors that may influence this disparity.

James' recent article, “She-E-Os: Gender Effects and Stock Price Reactions to the Announcement of Top Executive Appointments” can be found in the March 2007 issue of Strategic Management Journal.

Written by Melissa Maki, research communications coordinator for the Office of the Vice President for Research and Graduate Studies.