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The Effect of CEO Extraversion on Analyst Forecasts: Stereotypes and Similarity Bias
Author(s) -
Becker Jochen,
Medjedovic Josip,
Merkle Christoph
Publication year - 2019
Publication title -
financial review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.621
H-Index - 47
eISSN - 1540-6288
pISSN - 0732-8516
DOI - 10.1111/fire.12173
Subject(s) - extraversion and introversion , earnings , personality , similarity (geometry) , psychology , big five personality traits , heuristic , social psychology , business , accounting , artificial intelligence , computer science , image (mathematics)
Abstract 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.