Study: Alumni Connections to Corporate Boards Help Men Three Times More Than Women

Chris Gaetano
Published Date:
May 22, 2017

While having alumni connections on corporate boards is a great asset no matter who you are, a recent study says that men benefit about three times more than women, at least where it concerns financial analysts. The study, to be published in the Review of Financial Studies, looked at analysts' fiscal year-end earnings-per-share forecasts and buy/sell recommendations from the I/B/E/S database for the years 1993 to 2009. They then used a method developed in another study to determine extent of alumni ties between analysts and corporate insiders, and refined three increasingly specific measures: one that identifies someone as "connected" if the analyst and one of the officers or directors of the company attended the same university; another where they attended the same school within the university; and another that had them at the same school within overlapping periods.

Overall, the sample size was 650 people (580 men and 78 women) for each data year.
The researchers determined that male and female analysts had roughly the same levels of connection in each of the three categories (men had slightly higher levels but not enough to be statistically significant).

In general, connections are strongly associated with better forecasting performance from analysts. However the impact of those connections has a significant gender divide. Having a connection to company insiders improved female analysts' performance by 2 percent, versus six percent for male analysts. The paper noted that the variable are constructed along an analyst-firm-year level, which means that a specific analyst will have different connection measures for different stocks they cover, and so identifies differences due solely to connection. 

"Thus, while it is plausible that connection is related to unobserved analyst talent which drives better performance, the association between connection and performance documented here is not explained by this cross-sectional sorting effect. Instead, connections improve analyst performance (as is the conclusion in Cohen, Frazzini, and Malloy (2010), and the improvement is larger for men than for women, indicating that the value of connections as an information channel is significantly higher for men than for women," said the paper. 

The researchers found a similar effect when considering the price impact of an analyst's buy recommendations. For women, connection increases analyst recommendation impact by 50 basis points to 1 percent. Male analysts, however, have an additional 60 basis point improvement, meaning that "the value of connections as an information channel is about twice as high for female analysts." Regardless of gender, though, connections do not affect the price impact of analysts' sell recommendations in any significant way. 

Finally they researchers looked at the impact of gender on being voted by institutional investors as a "star" or AA-rated analyst. While both men and women are equally likely to become AAs, it was found that, for men, being highly connected helps counter negative effects of poor past performance by about half. For women, though, it was the opposite: "being well connected only aggravates the negative effect of poor performance. These results indicate that connections act as a partial substitute for performance for male analysts while they are a complement to performance for female analysts." This means that the women who do make it to AA rating tend to rely less on connections than men for their performance. 

"These findings suggest that on Wall Street, men benefit more from connections, both in terms of job performance and in terms of the subjective evaluation by others. Strikingly, judging from numbers alone, there appears no gender gap among Wall Street analysts: female analysts are as likely to be voted AAs as their male colleagues are. But our results highlight the fact that the factors driving success are not entirely the same between men and women," said the study. 

The paper concluded by saying that climbing the corporate ladder requires both stellar performance and favorable subjective evaluation by others. If men benefit from connections on both fronts, but women do not, then their advantages can persist and even widen as their careers progress, which the researchers suggest could explain why, despite women surpassing men in both education and labor force participation, there are very few women in top corporate positions. 

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