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立 政 治 大 學
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1. Introduction
The Chief Executive Officer (CEO) is the main decision-maker in a firm and integrates views of the top management team, requiring high cognitive
complexity(Calori, Johnson, & Sarnin, 1994 ). CEOs’ managerial characteristics affect not only firm’s strategies and investment decisions but also risk-taking behaviors and firm performance (Malmendier & Tate, 2005, Coel & Thakor, 2008, Colbert, Barrick & Bradley, 2013). In addition, CEOs play a distinct role in
influencing organizational financial performance and corporate organizational commitment (Colbert, Barrick& Bradley, 2014) . In addition to demographic characteristics, CEOs’ personal traits also have impact on corporate policies and performance.
From recent research and practices, CEO’s personal trait matters. For instance, CEO’s charisma is related to firm performance via transformational leadership climate within an organization, and increases a firm’s organizational identity strength (OIDS) and relate positively to firm performance (Boehm, Dwertmann, Bruch, &
Shamir, 2015). Many studies have found that specific manager traits are related to decision-maker behavior, such as gender, age, education background and career experience (Barber & Odean, 2001; Bertrand & Schoar, 2003; Cadenilas et al., 2004;
Malmendier & Tate, 2005; Matta & Beamish, 2008; Antia, Pantalis, & Park, 2010;
Lin, Lin, Song, & Li, 2011; Buyl, Boone, Hendriks, & Matthyssens, 2011). In a moral hazard model created by information asymmetry, managers who prefer short-term results tend to sacrifice the interest of company in long term for the purpose of fulfilling personal optimization from his/her personal perspective (Jenson &
Meckling, 1976). Due to hubris hypothesis of Roll (1986), overconfident CEOs
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國立 政 治 大 學
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aggressively make acquisitions (Malmendier & Tate, 2008). Besides, Malmendier and Tate (2008) has indicated that overconfident CEOs tend to overestimate the return on investment plans and be overinvest in a optimism bias. The trade-off theory (Myers, 2011) has pointed out that the personal behavior of the manager is not reflected in corporate structure decisions. Contrast to trade-off theory, the agency theory proposed by Jenson and Meckling (1976) suggested that the self-interested behavior of CEOs may harm the interests of the company. Furthermore, demographic characteristics and psychological traits have been discussed to be influential in corporate financing decisions. Demographic characteristics include age, tenure, educational background and career experience (Hambrick & Mason, 1984; Berger, Ofek, & Yermack, 1997;
Pegels & Yang, 2000; Graham & Harvey, 2001; Barker & Mueller, 2002; Bertrand &
Schoar, 2003; Chen, Hsu, & Huang, 2010). As for psychological traits, they are composed of risk aversion, time preference and overconfidence (Heaton, 2002;
Malmandier & Tate, 2005, 2008; Graham, Harvey, & Puri, 2013; Landier & Thesmar, 2009; Malmendier, Tate, & Yan, 2011). According to prior empirical studies, there are significant correlations between corporate risk-taking behavior and traits of CEOs.
According to the matching theory, CEOs who do not match their firms will leave, while those who match their firms will stay (Allgood & Farrell, 2003). Graham et al. (2013) suggest that it is the CEO’s behavioral traits that match the firm, i.e., a CEO will choose a firm that matches his/her personal traits, or a firm will employ a CEO with specific traits it demands. The paper also indicates that CEO traits such as optimism and managerial risk-aversion are related to corporate financial policies.
Firms which prefer risk-taking CEOs have a higher degree of risks, such as high-growth firms. When firms hire employees, especially executives, they not only focus on the demographic characteristics, but also their psychological traits owing to
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國立 政 治 大 學
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When it comes to our inborn personality, several factors matter, such as birth date, blood type. Based on our birth date, we can find our corresponding Chinese zodiac and constellation. It is commonly believed that Chinese zodiacs and constellation are connected with our personality traits (See Appendix 2 and 3).
According to prior studies, blood type has little or no relationship with personality (Rogers & Glendon, 2002). Contrary to blood type, constellation and Chinese zodiac have been commonly and usually connected with our personality although there are few empirical studies related . Since constellation and Chinese zodiac has existed actively in our culture, I believe that Chinese zodiac and constellation have impact on our personality and Chinese and western people have always been commonly believed that we can understand others through their constellation and Chinese zodiac.
The purpose of this study is to examine whether CEO’s constellation and Chinese zodiac have an impact on firm’s risk-taking behavior. Prior studies indicate that CEO traits affect firm’s risk-taking policies; however, there is no direct
indication that CEO’s Chinese zodiac and constellation, from Western and Chinese points of view, have an impact on the firm risk-taking behaviors and I attempt to fill this gap in the literature.
Following Bova, Kolev, Thomas, and Chang (2014), I use two measures of firm risk to reflect the extent to which CEO’s Chinese zodiac or constellation affecting corporate risk-taking behavior, usually defined as the volatility of stock returns in an efficient market. My first risk measure is the standard deviation of monthly stock returns over the 12 months following the disclosure of audited financial statements.
To the extent that the market may not be fully efficient, stock volatility will be affected by other factors and represent a noisy measure of corporate risk. As an alternative proxy, I use an accounting measure: the standard deviation of seasonally-differenced quarterly accounting return on assets over the next 12 quarters.
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Furthermore, I also consider other indirect measures of corporate risk, which reflect a firm’s policy, such as the level of R&D expenditures and capital expenditures.
Previous studies have pointed out that the demographic characteristics and psychological traits of CEOs influence their behaviors and firm performances.
However, prior studies mostly focus on the influences of demographic characteristics, which is easier to observe and measure. To supplement prior research, this study focuses on psychological traits which are not commonly discussed. In addition, this study uses the personality traits respectively represented by Chinese zodiacs and constellation as a starting point for research to observe whether the personal
characteristics of CEOs, decision-makers of companies, have influence on the firm’s risk-taking behavior. This is an interesting and worthy research question that I believe shareholders, board of directors and potential investors always want to seek for suitable CEOs who can both match with firms’ missions and objectives and create values for the firms. The findings will also contribute to the discussion to the
discussion on influences of CEO personality traits on corporate risk-taking behavior.
This study is organized as follows. Section 2 reviews related literature. Section 3 develops the hypothesis. Section 4 describes the sample selection and research design. Section 5 describes the descriptive statistics and presents the empirical results, Section 6 describes the additional analysis, and Section 7 concludes.
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國立 政 治 大 學