Have you ever noticed how first impressions influence your perception of people? How you judge or treat some persons differently based on their facial appearance?
Similar ideas have been studied in business settings as well. Appearance-based perceptions are not only crucial in day-to-day human interactions but can significantly influence the individual’s success.
Phycology literature argues that first impressions are a powerful source of information about individuals’ action, social role, and personality and are often formed unconsciously from the visual appearance of their faces.
It has been proven that just from short, non-verbal observations of people’s behavior, we can accurately predict, for example, teachers’ end-of-semester evaluations, individuals’ job performance, election outcomes, and people’s intelligence ratings.
Even more interestingly, facial appearance is extremely important in corporate settings as CEOs’ success can be inferred from the cognitive perception of their faces.
For example, CEOs that look more powerful and are perceived as better leaders also reach higher profits for their firms. Additionally, CEOs with higher width-to-height ratios of their faces are better negotiators as they look more aggressive and self-interested.
Taking all this into account, it seems that some element of firm financial success is communicated through the CEO’s facial appearance.
However, the CEO’s facial appearance does not only predict firm success, but it can also influence the decision of whether to invest in the company or not. As attractiveness can dramatically affect human lives in general, it is also extremely important when assessing firm value. It has been proven that investors are more likely to buy shares in firms with more attractive CEOs, leading to higher stock returns for such firms. Similarly, the cognitive perceptions of management competence, trustworthiness, and attractiveness also increase the pricing of firms’ shares.
Now, let’s take a look at the role that facial expressions plays in all of this.
While most of the appearance-based studies control for the emotional expressiveness, emotions can be also important cues when making inferences about CEOs‘ characteristics, and hence deciding about investing in the firm.
For example, looking at two pictures of the same CEO below, when would you preferably invest in the firm – when you see the left photo of a CEO in the annual report or rather the right one? When do you consider the CEO as more competent, credible, or trustworthy?
If your answer is the right picture, this is quite expected given the psychology research…
The current literature suggests that positive emotions may lead the CEO to process more information, be more creative, and reduce the conflict between individuals who work together. Furthermore, positive psychological traits of CEOs (e.g., optimism) are positively associated with transformational leadership, which improves the firm’s performance. Another important aspect of positive emotions is CEO charisma, which positively influences the perception of leader effectiveness and attraction to the leader.
On the other hand, when leaders express negative emotions, people negatively assess their competences.
When studying the relationship between CEOs’ emotional display and the firms’ stock prices, we can observe that investors value CEOs with positive emotions more favorably, leading to higher stock prices after controlling for financial results (i.e., net income and book value of equity). These findings provide initial evidence that investors detect managers’ ability from their facial cues and at least partially incorporate it into the firm valuation.
Therefore, believe it or not, emotional expressions are extremely important in several contexts of human life since they can notably affect our perceptions of individuals and their characteristics.
That is not only the case in a corporate setting, where CEO photos included in annual reports can significantly influence the investors’ perceptions, but can happen in every-day situations that involve social interactions between humans, such as job interviews, oral exams, or even romantic dates.