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CEO Personal Risk-Taking and Corporate Policies

Published online by Cambridge University Press:  09 March 2016

Matthew D. Cain
Affiliation:, U.S. Securities and Exchange Commission, Washington, DC 20549
Stephen B. McKeon
Affiliation:, University of Oregon, Lundquist College of Business, Eugene, OR 97403.
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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.

Research Articles
Copyright © Michael G. Foster School of Business, University of Washington 2016 


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