Attractive chief executives receive higher total compensation, better returns on their first days on the job and boost stock performance when they appear on television, according to the preliminary findings of a new study.
Joseph Halford and Hung-Chia Hsu, two economists at the University of Wisconsin, released a working paper called "Beauty is wealth: CEO appearance and shareholder value." In the paper, they rated the attractiveness of 677 CEOs from S&P 500 companies based on "facial geometry."
The study wanted to find out whether there was a positive relation between the attractiveness of a company's CEO and a return on investment in that company, something argued by John Graham, Campbell Harvey and Manju Puri in a 2010 paper from Duke University. These three authors said that good looks made CEOs appear more competent and gave them better negotiating skills, enabling them to extract better deals for shareholders.
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When looking at the relationship between CEO attractiveness and stock returns around their first day in the job, Halford and Hsu concluded: "We find that FAI (facial attractiveness index) has a positive and significant impact on stock returns surrounding the first day when the CEO is on the job, indicating that shareholders seem to perceive more attractive CEOs to be more valuable."
Halford and Hsu told CNBC that Marissa Mayer, the president and CEO of Yahoo, was a good example, based on their report. "She scored 8.45 (out of 10) in our facial attractiveness index and is among the top 5 percent (best-looking) in our sample," they wrote. "Yahoo has been doing well since she became the CEO (about 158 percent increase in stock price).
"Of course, we don't mean that all the increase in stock price is from her appearance. We just find that there might be some positive correlation between the two."
The economists conducted a variety of tests, for example, analyzing 1,830 merger and acquisition deals between 1985 and 2012. They discovered that: "The evidence...suggests that more attractive CEOs receive more surpluses for their firms from M&A transactions, a finding consistent with the hypothesis that more attractive CEOs improve shareholder value through superior negotiating prowess."
Furthermore, the paper looked into CEO television appearances—which they restricted to those shown on CNBC.com between 2008 and 2012—and whether there was any correlation between the appearance of an attractive CEO and stock returns. Halford and Hsu concluded that shareholders responded positively to viewing more attractive CEOs on television.
Does this mean that Halford and Hsu would suggest that companies hire stunning CEOs to ensure a more profitable existence?
"Our results do not suggest that, when searching for CEOs, firms should only look at appearance without considering other abilities," they wrote in an email to CNBC. "On the other hand, for firms that rely more on the negotiation and visibility aspects, maybe they should place more weight on appearance when searching for CEOs."
This is not the first time the interaction between beauty and business has been investigated.
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In 1994, University of Texas economist Daniel Hamermesh coined the term "pulchrinomics," or the economic study of beauty. He wrote about the topic in the American Economic Review, commenting on a study conducted by himself and his colleague, Jeff Biddle, where interviewers in the 1970s had had ranked the attractiveness of U.S. and Canadian workers, as well as noted their earnings. More attractive workers were found to earn a 5 percent premium over those of average appearance.
"Wages of people with below-average looks are lower than those of average-looking workers; and there is a premium in wages for good-looking people that is slightly smaller than this penalty," the report noted.
Commenting on Halford and Hsu's report, Robert Williams, principal and director at recruitment firm Asia Media Search, said first impressions were important.
"A commanding presence will add credibility either consciously or subconsciously, rightly or wrongly," he told CNBC via email. "My guess would be that Wall Street, like Washington, will always put stock in good looks as a measure of ability.
"I wonder if in today's instant media world, whether Abraham Lincoln, with his acne scarred face, lanky body and high pitched voice, would ever have been elected, or FDR for that matter. Would the television media focus just on his wheelchair?"
He concluded: "As a recruiter, I feel the focus should be a candidate's abilities and accomplishments, not the smile. But human nature is what it is."
—By CNBC's Kiran Moodley. Follow him on Twitter @kirancmoodley