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CEO Personal Risk-Taking and Corporate Policies

Published online by Cambridge University Press:  09 March 2016

Matthew D. Cain  and
Stephen B. McKeon
Matthew D. Cain
Affiliation:
[email protected], U.S. Securities and Exchange Commission, Washington, DC 20549
Stephen B. McKeon*
Affiliation:
[email protected], University of Oregon, Lundquist College of Business, Eugene, OR 97403.
*
*Corresponding author: [email protected]
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Abstract

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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.

Type
Research Articles
Information
Journal of Financial and Quantitative Analysis , Volume 51 , Issue 1 , February 2016 , pp. 139 - 164
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2016 

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