The trick to raising your company’s stock price is simple: hire a hot CEO.
That’s not a joke. While it’s previously been shown that better-looking CEOs earn bigger paychecks, these attractive execs also are associated with higher stock returns and stronger gains on M&A deals, according to a new research paper.
In “Beauty is Wealth: CEO Appearance and Shareholder Value,” University of Wisconsin economists Joseph Halford and Scott Hsu discovered the 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.
To come up with the attractiveness metrics, Halford and Hsu used a “Facial Attractiveness Index” (FAI) that crunches 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:
1. Attractive CEOs receive a “beauty premium.” 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 known as the “beauty premium.”
2. 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,” Halford and Hsu write.
3. Attractive CEOs get larger surpluses from M&A deals. Halford and Hsu say this finding is linked to the notion that hotter 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.
4. Stocks rise if the company’s attractive CEO appears on TV. Having a hot CEO boosts a company’s visibility and public image. Halford and Hsu find that when attractive CEOs appear on television, their companies tend to see improved stock returns. Talk about effective marketing.
“The findings suggest that CEO appearance matters for shareholder value and provide an explanation why more attractive CEOs receive ‘beauty premiums’ in their compensation,” the economists conclude.
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