Men gain greater reputation and job performance benefits from their professional connections than women with equivalent education and job skills, according to INSEAD’s Lily Fang and Sterling Huang of Singapore Management University, who studied U.S. Wall Street analysts.
In fact, many women had superior educational qualifications: Thirty-five percent these women had educational qualifications from Ivy League universities, in contrast to 25 percent of men from the same prestigious universities.
Fang and Huang examined analysts’ alumni connections with senior officers or board members of the seven to eight companies they covered, using an approach pioneered by Harvard’s Lauren Cohen, and Christopher Malloy with Andrea Frazzini, of AQR Capital Management.
Analysts’ year-end earnings per share (EPS) forecasts and buy/sell stock recommendations from 1993 to 2009 were considered, along with the price impact of their recommendations, and whether they were named “All America Research Team” (AA) by Institutional Investor magazine during the same period.
This coveted recognition as part of the AA is based on the institutional investors’ subjective evaluation of each analyst’s industry knowledge, communication, responsiveness, written reports, and related skills.
Surprisingly, forecast accuracy is one of the least important selection criteria, so skillful analysts may not be recognized as an “All America” member if they are not visible and well-regarded by decision-makers.
Connections also directly contributed to male analysts’ odds of being elected an AA but not for female analysts, suggesting that investors subjectively value connections among male analysts but not among female analysts.
Further, these reputational decisions have financial consequences for analysts because those awarded the AA title earn around three times more than those without it.
About 25% of women and men analysts shared a school tie with a senior officer or board member in the firms they cover, but these connections significantly improved men’s forecast accuracy more than women’s.
These connections also improved the impact of male analysts’ stock recommendations, measured by market reaction to their buy and sell calls.
Female analysts with a connection to a female executive at firms they covered had a highly significant improvement in accuracy ranking, yet male analysts with male connection experienced almost twice as much accuracy improvement.
This profoundly different impact of equal connections early in women’s and men’s careers could explain gender gaps that exist throughout long-term career trajectories, supporting Herminia Ibarra’s similar results for men and women in an advertising firm, where men capitalized on network ties to improve their positions with employers.
Women capable of executive roles at these Wall Street firms may remain in analytical roles because promotion to General Manager roles depend on subjective evaluations by others, generally men.
The “old boys club” remains a powerful advantage for men even though female analysts are equally represented in the AA analyst pool.
Fang and Huang concluded that despite mandated protections against gender discrimination in the U.S, men and women may be evaluated using different subjective criteria, even with the benefit of social capital.
This leads to differential career advancement for women and men.
Social capital is affected by legitimacy, reputation, and network structures, argued University of Chicago’s Ronald Burt.
He noted that “holes” in a social network are entrepreneurial opportunities to add value, and women should have many of these chances to fill network holes, and increase possibility of advancement.
However, Burt noted that “entrepreneurial networks linked to early promotion for senior men do not work for women” because women are not accepted as legitimate members of the population of highly promotable candidates.
He explained that women and minorities who succeed despite this disadvantage gain access to social capital by leveraging the network of a legitimate strategic partners.
This economic analysis may explain the powerful advantage of sponsors for women and minorities in the workplace.
-How do you identify and fill “structural holes in social capital networks”?
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