Are ‘Masculine’ CEOs More Likely To Engage In Financial Misreporting?


It’s not politically correct to look for connections between physical characteristics and behavior, but that doesn’t mean the correlations don’t exist – height and body-mass index (BMI), for example, have been shown to be statistically significant predictors of financial decision-making style. Now researchers says that facial attributes can help predict financial misbehavior as well.

“Facial masculinity is associated with a complex of masculine behaviors (including aggression, egocentrism, risk-seeking, and maintenance of social status) in males,” write Yuping Jia of the Frankfurt School of Finance and Management, and Laurence van Lent and Yachan Zeng of Tilburg University in their paper Masculinity, Testesterone, and Financial Misreporting in the Journal of Accounting Research. “We document a positive association between CEO facial masculinity and various misreporting proxies in a broad sample of S&P1500 firms during 1996–2010.”


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Masculine faces correlated with SEC enforcement, insider trading, options backdating

Facial width-to-height ratio (fWHR) is known to correlate with both higher testosterone levels and more aggressive behavior in general, so the researchers gathered pictures for S&P 1500 CEOs in 2009 and discarded those with female CEOs or without measurable pictures (22 and 295 respectively, a telling statistic in its own right). By extending the search for financial misreporting or SEC enforcement actions to any year between 1996 and 2010 as long as a company had the same CEO, the researchers ended up with 6,868 firm-years to work with.

During that time, firms whose CEO had an above average fWHR were more likely to be hit with an SEC Accounting and Auditing Enforcement Releases (AAERs) and the CEOs themselves were more likely to be named as perpetrators in the AAERs. The researchers also found that high fWHR was a significant predictor for opportunistic insider trading and options backdating.

“An emerging stream of work in accounting and finance recognizes that financial reporting practices vary predictably with specific individual traits of executives,” they write. “We argue that facial structures meaningfully capture variation in those CEO personal characteristics that are associated with financial reporting.”


Testosterone may not be the real culprit

There are at least two dangers to this kind of thinking. The first is that, even when research like Jia, van Lent, and Zeng’s is done accurately and in good faith, bigots will invariably take it out of context to justify their own opinions. The other, not entirely unconnected, is that it’s impossible to know why this correlation exists. This paper acknowledges that it’s impossible to say why the correlations exist from the data we have, and then speculates that testosterone is the culprit. But it’s just as plausible that people with different facial characteristics are treated differently for cultural reasons, which would also explain why those with typically masculine features are more likely to be named by the SEC in AAERs.

H/T Justin Lahart of WSJ

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Michael has a Bachelor's Degree in mathematics and physics from Boston University and Master's Degree in physics from University of California, San Diego. He has worked as an editor and writer for several magazines. Prior to his career in journalism, Michael Worked in the Peace Corps teaching math and science in South Africa.
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