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CEO’s total wealth characteristics and implications on firm risk

Korkeamäki, Timo ; Liljeblom, Eva LU and Pasternack, Daniel (2018) In International Review of Finance 18(1). p.35-58
Abstract
We study the connections between firm risk and the CEO’s personal wealth characteristics, using a unique dataset on CEO wealth and its components. Consistent with decreasing absolute risk aversion, we find that wealthier CEOs are associated with higher risk firms. Riskier firms tend to have CEOs whose wealth is more independent of the firm. We also find that CEOs with high personal portfolio betas run firms with higher betas. CEO’s tenure is negatively associated with firm risk measured either as beta, idiosynchratic risk, or volatility of accounting profitability. A possible interpretation is that risk-averse managers are better able to imprint their risk preferences on the firm over time. Stronger corporate governance weakens the... (More)
We study the connections between firm risk and the CEO’s personal wealth characteristics, using a unique dataset on CEO wealth and its components. Consistent with decreasing absolute risk aversion, we find that wealthier CEOs are associated with higher risk firms. Riskier firms tend to have CEOs whose wealth is more independent of the firm. We also find that CEOs with high personal portfolio betas run firms with higher betas. CEO’s tenure is negatively associated with firm risk measured either as beta, idiosynchratic risk, or volatility of accounting profitability. A possible interpretation is that risk-averse managers are better able to imprint their risk preferences on the firm over time. Stronger corporate governance weakens the connection between CEO wealth characteristics and firm risk. (Less)
Abstract (Swedish)
We study the connections between firm risk and the CEO’s personal wealth characteristics, using a unique dataset on CEO wealth and its components. Consistent with decreasing absolute risk aversion, we find that wealthier CEOs are associated with higher risk firms. Riskier firms tend to have CEOs whose wealth is more independent of the firm. We also find that CEOs with high personal portfolio betas run firms with higher betas. CEO’s tenure is negatively associated with firm risk measured either as beta, idiosynchratic risk, or volatility of accounting profitability. A possible interpretation is that risk-averse managers are better able to imprint their risk preferences on the firm over time. Stronger corporate governance weakens the... (More)
We study the connections between firm risk and the CEO’s personal wealth characteristics, using a unique dataset on CEO wealth and its components. Consistent with decreasing absolute risk aversion, we find that wealthier CEOs are associated with higher risk firms. Riskier firms tend to have CEOs whose wealth is more independent of the firm. We also find that CEOs with high personal portfolio betas run firms with higher betas. CEO’s tenure is negatively associated with firm risk measured either as beta, idiosynchratic risk, or volatility of accounting profitability. A possible interpretation is that risk-averse managers are better able to imprint their risk preferences on the firm over time. Stronger corporate governance weakens the connection between CEO wealth characteristics and firm risk. (Less)
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author
; and
organization
alternative title
CEO’s total wealth characteristics and implications on firm risk
publishing date
type
Contribution to journal
publication status
published
subject
keywords
Ceo wealth, Firm risk, CEO wealth, firm risk
in
International Review of Finance
volume
18
issue
1
pages
35 - 58
publisher
Wiley-Blackwell
external identifiers
  • scopus:85021441476
ISSN
1468-2443
DOI
10.1111/irfi.12139
language
English
LU publication?
yes
id
805bdb1f-a74e-4f72-ab14-ba846c89978f
date added to LUP
2017-05-15 15:03:00
date last changed
2021-09-22 02:41:42
@article{805bdb1f-a74e-4f72-ab14-ba846c89978f,
  abstract     = {We study the connections between firm risk and the CEO’s personal wealth characteristics, using a unique dataset on CEO wealth and its components. Consistent with decreasing absolute risk aversion, we find that wealthier CEOs are associated with higher risk firms. Riskier firms tend to have CEOs whose wealth is more independent of the firm. We also find that CEOs with high personal portfolio betas run firms with higher betas. CEO’s tenure is negatively associated with firm risk measured either as beta, idiosynchratic risk, or volatility of accounting profitability. A possible interpretation is that risk-averse managers are better able to imprint their risk preferences on the firm over time. Stronger corporate governance weakens the connection between CEO wealth characteristics and firm risk.},
  author       = {Korkeamäki, Timo and Liljeblom, Eva and Pasternack, Daniel},
  issn         = {1468-2443},
  language     = {eng},
  number       = {1},
  pages        = {35--58},
  publisher    = {Wiley-Blackwell},
  series       = {International Review of Finance},
  title        = {CEO’s total wealth characteristics and implications on firm risk},
  url          = {http://dx.doi.org/10.1111/irfi.12139},
  doi          = {10.1111/irfi.12139},
  volume       = {18},
  year         = {2018},
}