Does Wall Street Discriminate by Race? Evidence from Analyst Target Prices
Analyzing over 97,000 price target valuations from 2005-2020, we find analysts’ judgments reflect over four times more pessimism per dollar of negative earnings news for Non-White CEO firms, resulting in lower target valuations. These lower target valuations are associated with an increased likelihood that Non-White CEO firms exceed their price targets, suggesting such pessimism is unwarranted. Further analyses reveal that the time-series variation in analysts’ pessimism is associated with several exogenous measures of racial sentiment (i.e., Donald Trump’s presidency, Black Lives Matter, and the annual number of racial bias crimes), consistent with racial discrimination that results in a greater negative impact of bad news on analysts’ valuations when the CEO is Non-White.
Race, discrimination, financial analyst, valuation, CEO, earnings announcement, target price
SMU Cox: Accounting (Topic)