LGBT CEOs and Stock Returns: Diagnosing Rainbow Ceilings and Cliffs

This study is the first to investigate the implications of lesbian, gay, bisexual, and transgender chief executive officers (LGBT CEOs) for stock performance, using an exhaustive sample of 26 LGBT publicly listed company CEOs since 2000. Firms with openly LGBT CEOs generate a statistically and economically significant monthly alpha of 0.69%-1.08%, robust to portfolio weighting schemes, estimation frequency, multi-factor asset-pricing models, multicollinearity, sectoral allocation effects, and in subsamples in the United States and globally. The results imply that a “rainbow ceiling” exists with regards to LGBT executives, and that companies they lead are persistently undervalued due to discrimination by investors. LGBT CEOs on average represent small growth stocks with poor past performance, supporting the “rainbow cliff” hypothesis that the LGBT community is overrepresented in precarious leadership positions. Portfolios formed of stocks with LGBT CEOs robustly outperform broad market indices, evidencing attractiveness for ethical investment from both selfish and social perspectives.