The effect of CEO risk appetite on firm volatility: an empirical analysis of financial firms

Belghitar, Yacine and Clark, Ephraim Alois (2012) The effect of CEO risk appetite on firm volatility: an empirical analysis of financial firms. International Journal of the Economics of Business, 19 (2). pp. 195-211. ISSN 1357-1516

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Official URL: http://dx.doi.org/10.1080/13571516.2012.642640

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Abstract

This paper examines the effect of CEO risk appetite on the return volatility of a sample of large, listed financial firms over the period 2000-2008. After controlling for firm specific characteristics, the results give strong evidence that the CEO risk appetite has an important effect on firm volatility. The biographical measures for CEO risk appetite are significant explanatory variables of all measures of firm volatility employed in this study. The effect of CEO age is significant and positive for all four volatility measures, while CEO education and current job tenure are negative and significant for all four measures. Executive experience with other firm boards has a negative and significant effect on total and idiosyncratic volatility. Interestingly, CEO wealth is complementary to the other biographical variables with a positive effect on all but the default volatility measure. Our results carry implications for shareholders, financial regulators, governments and managers.

Item Type:Article
Keywords (uncontrolled):Executive compensation; stock options; risk appetite; firm risk; financial institutions
Research Areas:Business School > Economics and International Development
Business School > Accounting and Finance
ID Code:7349
Permissions granted by publisher:Pre-refereed version as permitted by publisher.
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Deposited On:30 Mar 2011 07:50
Last Modified:23 Jul 2014 23:38

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