Beauty premium? Evidence from institutional investors’ voting for all-star analysts

Abstract

This study examines whether institutional investors’ voting for All-Star financial analysts is affected by analyst beauty. Using a sample of 1,135 U.S. analysts and controlling for analyst performance, we document that beauty, on average, does not affect the outcome of All-Star analyst voting. However, a beauty premium emerges in those sectors where there is high information asymmetry on analyst performance between analysts and fund managers. We further find that good-looking female U.S. analysts are less likely to be voted All-Star analysts. Our evidence implies that the beauty premium can be mitigated by a strong economic force such as low information asymmetry. Valuation Insight: A bias towards beauty suggests suboptimal human resource allocation that may negatively impact firm value. Concentrating on financial analysts this paper finds that a beauty premium exists in that good-looking male analysts are more likely to be voted All-Star (these are paid more and their advice is presumably more likely to be followed). However, the premium disappears for sectors with low information asymmetry between fund managers and analysts (in sectors with more and more experienced analysts generating lower forecast dispersion).