It has long been known that good-looking people make more money than, er, attractiveness-challenged people. In research, this is referred to as a “beauty premium” or “ugliness penalty”. In recent years, research has demonstrated that it affects far more than their own income.
To be sure, it’s not necessarily the case that beauty in itself leads to higher salaries. For example, one study suggests that it’s all about traits that happen to be correlated with looks; pretty people are on average healthier, more intelligent and have better personalities – they’re more outgoing and less neurotic.
Life isn’t fair.
For the self-employed, the effect is more ambiguous. It’s true that good looks plus an attractive personality are associated with higher income – but only for women. For men, there is no significant difference.
For CEOs, however, there are more wide-ranging effects. The beauty premium applies not only to themselves – where it’s certainly significant – but also to their company. For example, prettier/better-looking CEOs are associated with higher stock returns around announcements of hiring, earnings, or acquisitions – provided the announcements are accompanied by a photo, that is. Apparently, it’s also associated with higher pricing multiples.
Similarly, good-looking CEOs allegedly contribute to the overpricing of IPOs in less transparent companies, i.e. where it’s not entirely clear to investors what the figures and outlook look like. In such cases, it’s obviously more important what the CEO looks like. In more established and more transparent companies, it is instead the case that more attractive board members (!) affect the quality of financial reports. Clearly, those reports are well read.
Attractiveness also affects valuation in crypto issues, i.e. where a company raises capital by issuing cryptocurrency. These are often relatively new companies with little concrete information, but we all know that a picture is worth a thousand words and it just may be the case that beautiful pictures attract thousands of dollars. They certainly contribute to a higher valuation of the company. For the record: This is adjusted for other positive qualities, such as expertise and intelligence, so that the effect boils down to appearance.
And it doesn’t stop there. Several studies conclude that beauty affects one’s own investments. Better-looking people have more money in shares, and they have a higher proportion of their savings in shares. This may be because an attractive appearance affects confidence and risk preferences. Interestingly, or perhaps not, the effect is more significant for women and less educated investors.
And then we have a study of particular interest to Pareto Asset Management. It examines how the physical attractiveness of fund managers affects net subscriptions in the funds they manage. You guessed it: More capital is flowing into funds with more attractive managers, mostly from retail investors.
How sweet.
