Investors may be mistaking privilege for competence, rewarding privately educated CEOs with lower perceived risk despite no evidence they perform or behave differently.
In a new study from the University of Surrey, published in European Financial Management, researchers show that firms run by CEOs who attended private school experience lower stock market volatility, despite no meaningful differences in performance, decision-making or crisis management. Instead, the effect seems to be driven by perception, with investors interpreting elite backgrounds as a signal of competence and stability.
The study found that firms led by privately educated CEOs had around 5% lower stock volatility on average. However, there was no evidence that these CEOs took fewer risks, delivered better results or handled crises more effectively than their peers.
Researchers analysed decades of data on US firms, using private school attendance as an indicator of a CEO’s socioeconomic background. They compared stock market volatility, company performance and corporate decisions across firms led by privately and publicly educated executives.
The research highlights a gap between how markets judge leaders and how those leaders actually behave. While it is often assumed that background shapes decision-making, the evidence suggests something more subtle – investors may be relying on social cues when assessing uncertainty.
This matters because firm risk is not just about what companies do, but how markets react to them. When uncertainty is high, investors appear more likely to fall back on signals such as education and upbringing to guide their judgement.
Dr Christos Mavrovitis, co-author of the study 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 CEO’s background can shape how investors feel about a company, even when it has no real impact on how that company is run.”
Instead, this perceived reduction in risk weakens over time as more information becomes available about the CEO’s actual performance. It also fades in firms with greater analyst scrutiny or higher institutional investment, suggesting that better-informed investors rely less on social signals.
Dr Christos Mavrovitis added:
“What we find is a powerful reminder that markets do not operate purely on hard data. Investors interpret a CEO’s socioeconomic background (SES) as a signal of competence, and this shapes how they react to uncertainty. The result is lower stock market volatility for firms led by high socioeconomic status CEOs, even though the underlying business fundamentals remain the same.”
ENDS