CEO Extraversion and the Cost of Equity Capital
64 Pages Posted: 19 Apr 2019 Last revised: 16 Oct 2021
Date Written: August 20, 21
We examine whether CEO extraversion, an important personality trait associated with leadership, affects firms’ expected cost of equity capital. We measure CEO extraversion using CEOs’ speech patterns during the unscripted portion of conference calls. After controlling for multiple CEO and firm specific variables, we find a strong positive incremental association between CEO extraversion and firms’ expected cost of capital. Moreover, the cost of equity increases when a more extraverted CEO replaces a less extraverted CEO. In addition, we find that firms with relatively extraverted CEOs take more risk and exhibit lower credit ratings, which is associated with a higher cost of equity capital. These results are statistically and economically meaningful and do not appear to be driven by reverse causality or endogenous matching.
Keywords: CEO personality, extraversion, cost of equity capital, risk taking, firm valuation, capital issuance
JEL Classification: G11, G32, G41, M40, M41
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