Psychopathic Traits of Corporate Leadership as Predictors of Future Stock Returns

33 Pages Posted: 19 May 2020

Multiple version iconThere are 2 versions of this paper

Date Written: November 2019

Abstract

This paper examines whether it is possible to forecast 1‐year‐ahead returns of individual companies based on the observed ‘psychopathic’ characteristics of their top management team. We find that language characteristic of psychopaths present in annual report narratives, questionable integrity, excessive risk‐taking, and failure to contribute to charitable undertakings tend to reduce future shareholder wealth. These findings imply that firms could benefit from incorporating psychological evaluation in their recruitment processes, especially when seeking to fill senior management posts. While the return predictability described in this paper supports the upper echelons perspective, it simultaneously challenges the notion of informationally efficient stock prices.

Keywords: behavioral finance, corporate psychopaths, shareholders' wealth, stock market returns

Suggested Citation

Wisniewski, Tomasz Piotr and Yekini, Liafisu Sina, Psychopathic Traits of Corporate Leadership as Predictors of Future Stock Returns (November 2019). European Financial Management, Vol. 25, Issue 5, pp. 1196-1228, 2019, Available at SSRN: https://ssrn.com/abstract=3600307 or http://dx.doi.org/10.1111/eufm.12244

Tomasz Piotr Wisniewski (Contact Author)

Open University, UK ( email )

Walton Hall
Milton Keynes, Buckinghamshire MK7 6AA
United Kingdom

Liafisu Sina Yekini

University of Derby

Kedleston Road
Derby, DE22 1GB
United Kingdom

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