CEO Personal Risk-Taking and Corporate Policies
Matthew D. Cain
U.S. Securities and Exchange Commission
Stephen B. McKeon
University of Oregon - Department of Finance
February 5, 2014
Journal of Financial and Quantitative Analysis (JFQA), Forthcoming
This study analyzes the relation between CEO personal risk-taking, managerial risk-taking and total firm risk. We find evidence that CEOs who possess private pilot’s licenses, our proxy for personal risk-taking, are associated with riskier firms. Firms led by CEO pilots have higher equity return volatility, even beyond the amount explained by a wealth effect related to compensation structure. We trace the source of the elevated firm risk to specific corporate policies including leverage and acquisition activity. Our results suggest that non-pecuniary risk preferences revealed outside the scope of the firm have implications for project selection and various corporate policies.
Number of Pages in PDF File: 47
Keywords: risk preferences, mergers, acquisitions, leverage, volatility, sensation seeking
JEL Classification: G30, G32, G34
Date posted: March 15, 2011 ; Last revised: February 15, 2014
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