CEO Facial Width Predicts Firm Financial Policies

Abstract

Facial width-to-height ratio (fWHR) is a proxy for testosterone levels and has been linked to aggressive behavior and increased risk tolerance. This study is the first to examine the relationship between a proxy for CEO testosterone levels and firm financial policies. Using data hand-collected from images of 968 male CEOs of S&P 500 firms, I find that CEO facial width is positively correlated with leverage and negatively correlated with cash holdings during the 2002-2013 period. The relationship between CEO fWHR and financial policies is also observed for CEOs who go on to attain longer tenures with their firms, as well as when post-turnover firm-year observations are removed from the sample. Overall, it appears that CEO testosterone levels have a significant impact on corporate financial management decisions, as higher testosterone levels may induce CEOs to pursue more aggressive financial policies.

Keywords: facial width, testosterone, CEO, financial policies

JEL Classification: G3