CEO Personal Risk-Taking and Corporate Policies

47 Pages Posted: 15 Mar 2011 Last revised: 15 Feb 2014

See all articles by Matthew D. Cain

Matthew D. Cain

Berkeley Center for Law and Business

Stephen B. McKeon

University of Oregon - Department of Finance

Date Written: February 5, 2014

Abstract

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.

Keywords: risk preferences, mergers, acquisitions, leverage, volatility, sensation seeking

JEL Classification: G30, G32, G34

Suggested Citation

Cain, Matthew D. and McKeon, Stephen B., CEO Personal Risk-Taking and Corporate Policies (February 5, 2014). Journal of Financial and Quantitative Analysis (JFQA), Forthcoming, Available at SSRN: https://ssrn.com/abstract=1785413 or http://dx.doi.org/10.2139/ssrn.1785413

Matthew D. Cain

Berkeley Center for Law and Business ( email )

215 Boalt Hall
Berkeley, CA 94720-7200
United States

Stephen B. McKeon (Contact Author)

University of Oregon - Department of Finance ( email )

Lundquist College of Business
1208 University of Oregon
Eugene, OR 97403
United States

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