The Effect of Managers on Systematic Risk

Management Science, Forthcoming

79 Pages Posted: 7 Jul 2020 Last revised: 7 Jul 2022

See all articles by Antoinette Schoar

Antoinette Schoar

Massachusetts Institute of Technology (MIT) - Sloan School of Management; National Bureau of Economic Research (NBER)

Kelvin Yeung

City University of Hong Kong (CityU) - College of Business

Luo Zuo

National University of Singapore; Cornell University

Multiple version iconThere are 2 versions of this paper

Date Written: July 7, 2022

Abstract

Tracking the movement of top managers across firms, we document the importance of manager-specific fixed effects in explaining heterogeneity in firm exposures to systematic risk. In equilibrium, manager fixed effects on systematic risk are positively related with manager fixed effects on stock returns. These differences in systematic risk are partially explained by managers’ corporate strategies, such as their preferences for internal growth and financial conservatism. Managers’ early-career experiences of starting their first job in a recession also contribute to differential loadings on systematic risk. These effects are more pronounced when managers wield more influence, as in smaller firms and firms that do not have an independent board. Overall, our results suggest that managers play an important role in shaping a firm’s systematic risk.

Keywords: Manager Fixed Effects, Systematic Risk, Managerial Style.

JEL Classification: G12, G30.

Suggested Citation

Schoar, Antoinette and Yeung, Kelvin and Zuo, Luo, The Effect of Managers on Systematic Risk (July 7, 2022). Management Science, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3637552 or http://dx.doi.org/10.2139/ssrn.3637552

Antoinette Schoar

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

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National Bureau of Economic Research (NBER) ( email )

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Kelvin Yeung

City University of Hong Kong (CityU) - College of Business ( email )

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Academic Building (LAU)
Kowloon Tong, 12200
Hong Kong

Luo Zuo (Contact Author)

National University of Singapore ( email )

Cornell University ( email )

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