Male Stock Analysts With ‘Dominant’ Faces Get More Information—and Have Better Forecasts

But for women analysts, it can be a disadvantage, according to the study.

Industry experts and analyst peers are more willing to share information with male analysts whose faces are perceived as dominant, says Siew Hong Teoh, a professor of accounting at the University of California, Los Angeles, and co-author of the research. That openness to those analysts, she says, tends to mean the analysts have more-accurate earnings forecasts than analysts with facial features less associated with dominance. The research also suggests that experts and peers are less willing to share information with female analysts who are perceived as dominant-looking, compared with those who have less dominant faces, she says.

Facial features that reflect trustworthiness also result in greater accuracy, Prof. Teoh says, though according to her data this quality was much more important in the years before the Regulation Fair Disclosure, which the Securities and Exchange Commission introduced in October 2000 to curb analysts’ selective access to firm insiders, she adds.

Stock-market investors also, especially institutional investors, react more strongly to earnings forecast revisions issued by more-trustworthy-looking analysts, Prof. Teoh says “Our research suggests that face impressions influence analysts’ access to information and the perceived credibility of their reports," Prof. Teoh and her fellow researchers, write Prof. Teoh and her fellow researchers: Lin Peng, a professor of finance at Baruch College; Yakun Wang, an assistant professor of accounting at the Chinese University of Hong Kong, Shenzhen; and Jiawen Yan, an accounting Ph.D. student at Cornell University.

An open book

Whether or not a face can be read accurately, many people do place great weight on facial characteristics.

“People form impressions after extremely brief exposure to faces—within a hundred milliseconds," says Alexander Todorov, a behavioral-science professor at the University of Chicago Booth School of Business. “They take actions based on those impressions," he says. Under most circumstances, such quick impressions aren’t accurate and shouldn’t be trusted, he says.

Prof. Teoh and her fellow researchers analyzed the facial traits of nearly 800 U.S. sell-side stock financial analysts working between January 1990 and December 2017 who also had a LinkedIn profile photo as of 2018. They pulled their sample of analysts from Thomson Reuters and the firms they covered from the merged Center for Research in Security Prices and Compustat, a database of financial, statistical and market information.

The researchers used facial-recognition software to map out specific points on a person’s face, then applied machine-learning algorithms to the facial points to obtain empirical measures for three key face impressions—trustworthiness, dominance and attractiveness.

They examined the association of these impressions with the accuracy of analysts’ quarterly forecasts, drawn from the Institutional Brokers Estimate System.

Analyst accuracy was determined by comparing each analyst’s prediction error—the difference between their prediction and the actual earnings—with that of all analysts for that same company and quarter. For an average stock valued at $100, Prof. Teoh says, analysts ranked as looking most trustworthy were 25 cents more accurate in earnings-per-share forecasts than the analysts who were ranked as looking least trustworthy. Similarly, most-dominant-looking analysts were 52 cents more accurate in their EPS forecast than least-dominant-looking analysts.

The relation between having a face perceived as trustworthy and having more-accurate forecasts was highly significant before the SEC’s fair disclosure rule was enacted, and much weaker after, the study says. This suggests that before the rule was introduced, company executives were more willing to share information with analysts they perceived as trustworthy-looking, the researchers say.

The same effect—the relation between having a face perceived as trustworthy and having more-accurate forecasts—isn’t as great now, but “that is not saying it isn’t still there," Prof. Teoh says. She surmises that, since the rule, more-trustworthy-looking analysts are still more likely to have better access to information, but it isn’t coming from company executives, who now are supposed to share information equally; it is coming from sources such as industry experts and analyst peers.

The relation between a dominant face and accuracy, meanwhile, was significant before and after the regulation was enacted, the analysts say. This suggests that dominant-looking male analysts are always able to obtain information, Prof. Teoh says.

Gender differences

The researchers found stark gender differences. While forecasts of female analysts regardless of facial characteristics were on average more accurate than those of their male counterparts, the forecasts of women who were seen as more-dominant-looking were significantly less accurate than their male counterparts.

Says Prof. Todorov: “Women who look dominant are more likely to be viewed negatively because it goes against the cultural stereotype."