By Savva Shanaev, Arina Skorochodova & Mikhail Vasenin

This study is the first to investigate the implications of lesbian, gay, bisexual, and transgender chief executive officers (LGBT CEOs) for stock performance, using an exhaustive sample of 26 LGBT publicly listed company CEOs since 2000 to document statistically and economically significant financial outperformance of LGBT-led firms. Stocks of companies with openly LGBT CEOs generate a monthly alpha of 0.69%-1.08%, robust to portfolio weighting schemes, estimation frequency, multi-factor asset-pricing models, factor multicollinearity, sectoral allocation effects, and in subsamples both in the United States and globally. The results imply that a “rainbow ceiling” exists with regards to LGBT executives, and that firms they lead are persistently undervalued due to discrimination by investors. The rainbow ceiling effect is smaller for gay men CEOs than for CEOs with other LGBT identities. Further, LGBT CEOs on average represent small growth stocks with poor past performance, which supports the “rainbow cliff” hypothesis stating members of the LGBT community are overrepresented in precarious leadership positions. Portfolios formed of stocks with LGBT CEOs robustly outperform broad market indices in raw and risk-adjusted terms, evidencing potential attractiveness for ethical individual and institutional investment from both selfish and social perspectives.

Source: SSRN