CEO personal investment decisions and firm risk
Wei Cen and
John A. Doukas
European Financial Management, 2017, vol. 23, issue 5, 920-950
We develop a novel method of measuring CEO risk preference based on their personal allocation of deferred compensation funds, and find CEOs holding more volatile deferred compensation portfolios lead riskier firms. We also use the 2008 financial crisis as a natural experiment to check the robustness of this new method and find consistent evidence in support of a positive association between CEO riskâ€ taking and firm risk. Moreover, the evidence shows that riskâ€ taking CEOs pursue risky financial and investment policies. Our results, in accord with the behavioural consistency theory, demonstrate that CEOs act consistently across personal and professional choices.
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