CEO Extraversion and the Cost of Equity Capital

74 Pages Posted: 19 Apr 2019 Last revised: 6 Sep 2023

See all articles by Biljana Adebambo

Biljana Adebambo

University of San Diego

Robert M. Bowen

Chapman University - The George L. Argyros School of Business & Economics; University of Washington - Foster School of Business

Shavin Malhotra

University of Waterloo

Pengcheng Zhu

University of San Diego

Date Written: September 2, 2022

Abstract

We examine whether CEO extraversion, an important personality trait associated with leadership, is associated with 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, endogenous matching or look-ahead bias.

Keywords: CEO personality, extraversion, cost of equity capital, risk taking, firm valuation, capital issuance, firm efficiency

JEL Classification: G11, G32, G41, M40, M41

Suggested Citation

Adebambo, Biljana and Bowen, Robert M. and Malhotra, Shavin and Zhu, Pengcheng, CEO Extraversion and the Cost of Equity Capital (September 2, 2022). Available at SSRN: https://ssrn.com/abstract=3365155 or http://dx.doi.org/10.2139/ssrn.3365155

Biljana Adebambo

University of San Diego ( email )

5998 Alcala Park
San Diego, CA 92110-2492
United States

Robert M. Bowen (Contact Author)

Chapman University - The George L. Argyros School of Business & Economics ( email )

333 N. Glassell
Orange, CA 92866
United States
206.334.0911 (Phone)

HOME PAGE: http://www.chapman.edu/our-faculty/robert-bowen

University of Washington - Foster School of Business ( email )

Box 353226
University of Washington
Seattle, WA 98195-3226
United States
206.334.0911 (Phone)

HOME PAGE: http://foster.uw.edu/faculty-research/directory/robert-bowen/

Shavin Malhotra

University of Waterloo ( email )

200 University Ave W
University of Waterloo
Waterloo, Ontario N2L 3G1
Canada
519-888-4567 (Phone)

Pengcheng Zhu

University of San Diego ( email )

5998 Alcala Park
San Diego, CA 92110-2492
United States

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