CEO Extraversion and the Cost of Equity Capital
46 Pages Posted: 19 Apr 2019 Last revised: 17 Jun 2020
Date Written: March 15, 2019
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
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