Do Investors Prefer Female CEOs in Activist-Targeted Firms? The Role of CEO Gender, Shareholder Activism Type, and Earnings Guidance Disclosure

This study addresses concerns from the SEC and examines the trend of shareholder activism and its impact on financial players. Motivated by prior research that finds female CEOs are more likely to be targeted by shareholder activism, we examine how the nature of shareholder activism (Profitability-focused versus Environmental/Social-focused (“E&S-focused”)) interacts with CEO gender to create perceptions of match or mismatch for nonprofessional investors, in terms of perceived ability to address the shareholder activism. Drawing on role-congruity theory, we predict and find that female CEOs are rewarded under E&S-focused activism, but punished under profitability-focused activism, in terms of investors’ willingness to invest in the firm targeted by the activism. We also find that when managers disclose an optimistic earnings guidance forecast, this disclosure attenuates this reliance on gender-based stereotypes to inform investment decisions. Finally, we find evidence that earnings guidance disclosure has a stronger impact on perceptions of female CEOs than male CEOs