Banks led by more masculine-looking CEOs have more volatile stock returns

The personal characteristics of banks’ top executives are reflected in bank risk-taking and the formation of executive compensation, shows Shaker Ahmed in his doctoral dissertation. 

Shaker Ahmed’s doctoral dissertation at the University of Vaasa examines whether and how the personal characteristics of banks’ top executives influence bank-level decisions and outcomes. Ahmed finds, for instance, that banks led by masculine-looking CEOs are associated with higher levels of risk-taking. 

– Along with their skills, abilities, and talent, executives also bring their physical attributes to the labour market. My findings suggest, among other things, that investors can use the readily available clues from facial features to form their perception about a CEO's strategic orientation, such as risk preferences, says Ahmed, who will be defending his doctoral dissertation on 24 November 2023.

If Chuck Norris were a bank CEO, would the bank be very risky?

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Findings from the biological and psychological literature indicate that facial masculinity among males is linked to high levels of testosterone, and higher testosterone level, in turn, is related to masculine behavioural traits such as increased risk tolerance, aggression, and sensation seeking. 

By exploring this linkage between facial masculinity and attributes reflecting individuals’ risk preferences, Ahmed's dissertation examines whether CEO masculinity is associated with bank risk-taking by using data on large, publicly traded US banks. 

CEO facial masculinity is associated with more volatile stock returns

As part of his dissertation, Ahmed used facial width-to-height ratio as the measure of facial masculinity. 

The empirical findings demonstrate that banks led by CEOs with more masculine facial features, i.e. wider cheekbones compared to height between the upper lip and eyebrows, are associated with more volatile stock returns. Further analysis shows these banks also have higher levels of idiosyncratic, bank-specific risk.

Is there a gap between CEO decisions and investors' perceptions about them?

Even though banks with more masculine-looking CEOs have higher stock return volatility, these banks are not necessarily associated with lower bank stability. 

According to Shaker Ahmed, these findings can be interpreted to indicate that stock market participants perceive the banks led by CEOs with more masculine facial features to be riskier even though these banks are not necessarily associated with higher insolvency risk. Thus, there may be a gap between the actual actions of CEOs with more masculine facial features and the investors’ inferences and perceptions about the riskiness of their banks.

The facial attributes of bank executives are also found to influence the formation of their compensation. The results documented in Ahmed’s dissertation demonstrate that in the US, bank CEOs with more attractive facial features earn, on average, one million dollars more per year than their less appealing colleagues. 

– Even though my doctoral dissertation focuses on bank CEOs, the implications of these findings are not limited to understanding CEOs’ strategic disposition in banks, says Ahmed. 

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Doctoral dissertation

Ahmed, Shaker (2023) Essays on Executive Characteristics, Risk-taking, and Compensation in the Banking Industry. Acta Wasaensia 520. Doctoral dissertation. University of Vaasa.

Publication pdf

Public defense

The public examination of M.Sc. Shaker Ahmed’s doctoral dissertation "Essays on Executive Characteristics, Risk-taking, and Compensation in the Banking Industry" will be held on Friday 24.11.2023 at noon at the University of Vaasa, auditorium Nissi.

You can follow the public defense online (Zoom, password: 185786) 

Emeritus Professor Michael Bowe (University of Manchester) will act as an opponent and Professor Sami Vähämaa as a custos.