Privately Educated CEOs Seen as 'Safer Bet' by Investors, Despite No Performance Difference

Chief executives who attended private school are perceived by investors as a “safer bet”, according to a study, despite there being no evidence they perform or behave differently to their state-educated counterparts. Companies run by privately educated bosses tend to experience lower stock market volatility, even though there are no meaningful differences in their performance, decision-making or crisis management, the research from the University of Surrey found. The stock volatility at firms led by this group was on average 5% lower, although the study found these executives did not take fewer risks, deliver better results or handle crises more effectively. Instead, the effect was driven by investors’ perception that those with elite backgrounds were more competent or stable. Investors may be mistaking privilege for competence when dealing with uncertainty, according to the study, published in the journal European Financial Management, highlighting a disparity between how financial markets judge bosses and how those leaders actually behave. Dr Christos Mavrovitis, a co-author of the study and a senior lecturer in finance and accounting at the University of Surrey, said: “People like to think markets are purely rational, but our findings show that perception still plays a powerful role. A chief executive’s background can shape how investors feel about a company, even when it has no real impact on how that company is run.” Researchers analysed decades of data on US firms, using private school attendance as an indicator of the socioeconomic background of the chief executive. They compared stock market volatility, company performance and corporate decisions at companies led by executives educated at private and state schools. They found the impact of the perceived lower risk for the privately educated weakens over time as more information becomes available about a leader’s performance. It also fades in firms that face greater scrutiny by analysts or have higher levels of institutional investment, suggesting that better-informed investors rely less on social signals. Separate research has previously shown that private school alumni tightened their grip on some of the most powerful and influential roles in British society between 2019 and last year, including in business and the media.