The Effect of Managers on Systematic Risk

80 Pages Posted: 10 Aug 2020 Last revised: 10 Aug 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

Cornell University - Samuel Curtis Johnson Graduate School of Management

Multiple version iconThere are 2 versions of this paper

Date Written: July 2020

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.

Suggested Citation

Schoar, Antoinette and Yeung, Kelvin and Zuo, Luo, The Effect of Managers on Systematic Risk (July 2020). NBER Working Paper No. w27487, Available at SSRN: https://ssrn.com/abstract=3670001

Antoinette Schoar (Contact Author)

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

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Kelvin Yeung

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

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Luo Zuo

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

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