CEO Personal Risk-Taking and Corporate Policies. (9th March 2016)

• Record Type: Journal Article
• Authors: Cain, Matthew D.; McKeon, Stephen B.
• Is Part Of: Journal of financial and quantitative analysis. Volume 51:Number 1(2016)
• Page Start: 139
• Page End: 164
• Publication Date: 2016-03-09
• Subjects: Finance -- Periodicals; Investments -- Mathematics -- Periodicals; 332.05
• DOI: 10.1017/S0022109016000041
• Languages: English
• ISSNs: 0022-1090

Abstract

Abstract: This study analyzes the relation between chief executive officer (CEO) personal risk-taking, corporate risk-taking, and total firm risk. We find evidence that CEOs who possess private pilot licenses (our proxy for personal risk-taking) are associated with riskier firms. Firms led by pilot CEOs have higher equity return volatility, beyond the amount explained by compensation components that financially reward risk-taking. We trace the source of the elevated firm risk to specific corporate policies, including leverage and acquisition activity. Our results suggest that nonpecuniary risk preferences revealed outside the scope of the firm have implications for project selection and various corporate policies.