ON THE EFFECT OF SOCIAL ENVIRONMENT OF RACIAL INEQUALITY: TRUMP ELECTION AND MINORITY CEO PESSIMISM

Abstract

Donald Trump’s election unexpectedly increased the salience of ethnic inequality. Its emotional and real impact on the ethnic minority groups has not yet been documented. By exploring the variations in management forecasts, this study finds that in response to the Trump’s election, minority CEOs exhibit more pessimism in earnings forecasts for the subsequent quarter, compared with their non-minority counterparts. The effect is stronger for firms with less experienced and less confident minority CEOs. The textual analysis also reveals that minority CEOs have a more negative tone when describing different risk factors. They express more concerns about litigation and migration risk. By sharp contrast, the stock market does not react significantly to the election event for firms with minority CEOs. Collectively, this study provides the first evidence that Trump Election induces behavioral bias in the form of pessimism in minority CEOs, while its real impact on firm fundamentals is limited.