CEO Risk Taking and Firm Policies: Evidence from CEO Employment History

CEO personal investment decisions and firm risk

“…Although the above‐mentioned literature has its merits, critics argue that CEOs’ previous static characteristics and employment histories may not be a good measure to predict CEO talent and risk preference in the current employer firm. Wang () finds no difference in long‐run accounting performance for CEOs with different employment histories. Therefore, the most fundamental personal characteristic, an individual's preference for bearing risk, is still difficult to measure empirically, and this represents a gap in our understanding of the relationship between managerial risk‐taking and firm risk/performance.…”

“…Alternatively, prior literature has used managerial personal characteristics (such as age, personal income, wealth, education and gender) to estimate managerial risk aversion (e.g., Bajtelsmit & Bernasek, ; Donkers, Melenberg, & Van Söest, ; Grable, ; Wang & Hanna, ). However, critics argue that firm history and previous CEO characteristics are irrelevant and may not be a good proxy of talent and risk preferences in their current employment environment (Wang, ).…”