CEO Extraversion and the Cost of Equity Capital

46 Pages Posted: 19 Apr 2019 Last revised: 17 Jun 2020

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: March 15, 2019

Abstract

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 several CEO and firm specific variables, we find a strong positive incremental association between CEO extraversion and firms’ expected cost of capital. In addition, we find that firms with relatively extraverted CEOs take more risk and enjoy higher organizational capital, each of which is associated with higher cost of equity capital. Firms with extraverted CEOs also exhibit lower valuations and lower equity issuance. These results are not driven by reverse causality, analyst optimism, or CEO entrenchment.

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

JEL Classification: G02, G11, G30, G31, G32

Suggested Citation

Adebambo, Biljana and Bowen, Robert M. and Malhotra, Shavin and Zhu, Pengcheng, CEO Extraversion and the Cost of Equity Capital (March 15, 2019). 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://https://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://https://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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