What the Smart Money Says About Black CEOs

When any public company announces a new CEO, the board braces itself for investors’ reactions as they manifest in decreases or increases in share price. Investors are a highly salient stakeholder group whose responses to the appointment of chief executives, especially racial minorities, are highly anticipated and undoubtedly influence who is selected. But how much should their prospective reactions matter when a board is leaning toward selecting a Black candidate for the CEO role?

The issue is urgent. Despite noteworthy progress toward racial equity in some industries and at some job levels, Black representation in corporate America’s top leadership positions remains woefully low: The number of Black Fortune 500 CEOs peaked in 2023 — at nine. That is less than 1 in 50 for a racioethnic group that accounts for more than 1 in 8 Americans.

Recent research findings have highlighted how investors’ biases and perceptions influence their reactions to the appointment of Black CEOs. However, different groups of scholars have offered two highly divergent perspectives. One is pessimistic, suggesting that racial discrimination in American society pervades investors, thereby precipitating a negative stock market reaction to Black CEO appointments. The other, more optimistic view reflects positive market reactions when investors recognize the extensive and valuable human and social capital accrued by Black CEOs — individuals who overcame various hurdles to become senior executives.

Our ongoing research suggests that the factors underlying both views can contribute to market reactions and racial inequity. We find that Black leader appointments affect company financial valuations differently than those of White leaders, depending on whether the appointee is a known commodity and on the number of highly skilled employees they will lead. In short, appointing a Black leader often leads to positive market responses when the leader has a positive track record and the organization possesses less human capital. However, the stock market response is often negative when the leader is relatively unknown and collective human capital — that is, the economic value of the skills, knowledge, and experience of the workforce — is higher. Finally, we find that while there is evidence of negatively biased market responses to Black CEO leaders during their tenure, there is no difference in the actual financial performance of Black CEOs and their peer CEOs — even though minority executives tend to get