CEO Social Status and Risk-Taking
University of Melbourne - Department of Finance; Financial Research Network (FIRN)
August 15, 2016
I examine whether changes in CEO status affect risk-related business decisions. I use prestigious awards as shocks to CEO status relative to other CEOs. Firms with award-winning CEOs decrease their idiosyncratic volatility, and their industry betas converge towards one. These firms also reduce their spending on research and development, while increasing investment in fixed assets relative to a matched sample of firms with non-winning CEOs. The evidence suggests that CEOs who reach higher status become more concerned about poor relative performance. By conforming to other firms in their industry, CEOs with the highest reputation can lock-in their relative advantage.
Number of Pages in PDF File: 41
Keywords: Managerial Risk Taking, Relative Concerns, Reputation
JEL Classification: G30, G32
Date posted: September 26, 2010 ; Last revised: September 25, 2016