Market Reaction to CEOs’ Dynamic Hemifacial Asymmetry of Expressions

Rajiv D. Banker (), Hui Ding (), Rong Huang () and Xiaorong Li ()
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Rajiv D. Banker: Temple University, Philadelphia, Pennsylvania 19122
Hui Ding: Shanghai Jiao Tong University, Shanghai 200240, China
Rong Huang: Fudan University, Shanghai 200433, China
Xiaorong Li: Shanghai Jiao Tong University, Shanghai 200240, China

Management Science, 2024, vol. 70, issue 7, 4847-4874

Abstract: Neuropsychological studies propose that listeners unconsciously assess speakers’ trustworthiness via their facial expressions. Building on this theory, we investigate how investors respond to CEOs’ dynamic hemifacial asymmetry of expressions ( HFAsy ) shown in CNBC’s video interviews about corporate earnings. Consistent with the neuropsychological prediction that facial asymmetry induces distrust, we document that (1) the stock market reacts negatively to the CEO’s HFAsy shown in the interview video, and (2) the market reaction to favorable earnings news is negatively associated with the CEO’s HFAsy . We also find a significantly positive association between the short-window abnormal bid-ask spreads and HFAsy , suggesting a larger investor disagreement for firms with high- HFAsy CEOs. Furthermore, we show that analyst forecast revisions are negatively associated with CEOs’ HFAsy . Our results are robust to conducting a falsification test using the previous quarter as a pseudo-event, employing an alternative measure of HFAsy , and using more granular trading data at the second level. Overall, our study provides evidence that investor trust and trading behavior are affected by the dynamic hemifacial asymmetry of expressions appearing on CEOs’ faces.

Keywords: hemifacial asymmetry of expressions; market reaction; CEOs’ video interviews (search for similar items in EconPapers)
Date: 2024
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