Manliness implies Misreporting?

Manliness implies Misreporting?

January 30, 2015 Research Insights
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(Last Updated On: January 18, 2017)

Masculinity, Testosterone, and Financial Misreporting


We examine the relation between a measure of male CEOs’ facial masculinity and financial misreporting. Facial masculinity is associated with a complex of masculine behaviors (including aggression, egocentrism, risk-seeking, and maintenance of social status) in males. One possible mechanism for this relation is that the hormone testosterone influences both behavior and the development of the face shape. We document a positive association between CEO facial masculinity and various misreporting proxies in a broad sample of S&P 1500 firms during 1996-2010. We complement this evidence by documenting that a CEO’s facial masculinity predicts his firm’s likelihood of being subject to an SEC enforcement action. We also show that an executive’s facial masculinity is associated with the likelihood of the SEC naming him as a perpetrator. We find that facial masculinity is not a measure of overconfidence. Finally, we demonstrate that facial masculinity also predicts the incidence of insider trading and option backdating.

Alpha Highlight:

This may sounds nuts, but the authors in this paper examine the relationship between a CEOs’ facial features and their propensity to misreport financials. The hypothesis for why this relationship is causal is that a person’s physical characteristics (ex, fitness, height, or facial shape) predicts his/her personality characteristics (ex, aggressiveness, risk-taking, egocentrism).

This paper hypothesizes that a male CEO’s testosterone levels are linked to his masculine behavior, which are linked to financial misreporting. While it is impossible to get data on a CEO’s testosterone level, Stirrat and Perrett (2012) shows that male facial width-to-height ratio is a valid measure of his testosterone exposure during puberty, and this ratio has correlation with antisocial tendencies. The paper uses the Stirrat and Perrett metric as a proxy for testosterone.

  • Facial width-to-height ratio (fWHR): the distance between the cheekbones is the width and the distance between the upper lip and the highest point of the eyelids is the upper face height. fWHR is calculated as width divided by height.

2014-12-05 14_45_41-Testosterone and Financial Misreporting.pdf - Adobe Reader

The paper studies a sample of 1,136 CEOs from S&P 1500 companies in 2009. The authors manually collect each CEO’s measurable, high-quality, facing forward pictures from Google Images and calculate fWHR based on photos collected.  Based on  Stirrat and Perrett (2012), the above median fWHR represents more masculine facts.

To test the relation between financial misreporting and  fWHR, the authors run a regression model as follows. D(fWHR>median) is a dummy variable that takes the value of “1” if a CEO’s fWHR is above the median and “0” otherwise.

2014-12-05 15_05_32-Testosterone and Financial Misreporting.pdf - Adobe Reader
Click to enlarge.

Key Findings:

Facial masculinity matters! For CEOs with above-media fWHR, their risk associated with misreporting is up to 98% higher for CEOs with below-median fWHR.

Below is a part of Table 4 which shows the results of the regression. The coefficient on D(fWHR>median) in the proportional hazard model in column 1 (column 2) is 1.833 (1.984). Put it simply, CEOs with above-median fWHR face an 83% (98%) higher hazard of experiencing a substantial risk of misreporting than below-median-fWHR CEOs. (Column 1 and 2 differentiates on the quality of the pictures)

2014-12-05 13_45_30-Testosterone and Financial Misreporting.pdf - Adobe Reader
The results are hypothetical results and are NOT an indicator of future results and do NOT represent returns that any investor actually attained. Indexes are unmanaged, do not reflect management or trading fees, and one cannot invest directly in an index. Additional information regarding the construction of these results is available upon request.


This paper is hard to take seriously, but the authors do try their best to conduct a credible empirical analysis. You have to give the authors credit for thinking outside the box. I’m skeptical you can draw a causal conclusion from this research, but it is a thought-provoking finding nonetheless.

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About the Author

Wesley R. Gray, Ph.D.

After serving as a Captain in the United States Marine Corps, Dr. Gray received a PhD, and was a finance professor at Drexel University. Dr. Gray’s interest in entrepreneurship and behavioral finance led him to found Alpha Architect. Dr. Gray has published three books: EMBEDDED: A Marine Corps Adviser Inside the Iraqi Army, QUANTITATIVE VALUE: A Practitioner’s Guide to Automating Intelligent Investment and Eliminating Behavioral Errors, and DIY FINANCIAL ADVISOR: A Simple Solution to Build and Protect Your Wealth. His numerous published works has been highlighted on CBNC, CNN, NPR, Motley Fool, WSJ Market Watch, CFA Institute, Institutional Investor, and CBS News. Dr. Gray earned an MBA and a PhD in finance from the University of Chicago and graduated magna cum laude with a BS from The Wharton School of the University of Pennsylvania.

  • Michael Milburn

    It’d also be interesting to see ratios of CEOs in some of the scandals – like Enron or Worldcom.

    Similar traits might also be associated w/ ratio of lengths of ring and index fingers (tied to hormones during fetal development).

  • IlyaKipnis

    You know, I’m not exactly in disbelief about this. Now while this may be anecdotal, here’s my reasoning: for the “manly man” guys, they’re usually the guys that want to be the “masters of the universe”, and gravitate towards situations where their “Alpha” status would pay larger dividends for them — business and social types of situations, where being able to lie, fib, and otherwise be able to project a certain aura, even if there’s a bit of deception going on.

    On the other hand, for guys that don’t have that Alpha status, EG guys like me (short, chubby, etc.), they need to essentially step *out* of the limelight since they don’t convey that “master of the universe” type of display, and instead, let facts and figures do the talking, and thus, have more of an incentive to build their reputation on their work, which for them, goes front and center, as opposed to their personality. Thus, they would have more of a tendency to be honest.

    In any case, if there’d be nothing found here, it’d be a case of “well, what was anyone expecting from such a hypothesis”, but at the same time, if there *was* something here, it wouldn’t completely surprise me either.