Date of Award
Doctor of Philosophy (PhD)
John A. Doukas
David D. Selover
Recent studies have stressed the importance of managerial fixed effects on firm investment decisions. Following this stream of research, this dissertation empirically investigates the potential effects of two major Chief Executive Officer (CEO) characteristics, i.e. risk preferences and potential mobility, on corporate decisions such as merger and acquisition (M&A) and corporate social responsibility (CSR) investments.
Essay 1 examines whether the variation of M&A stock returns around the 2008 financial crisis is associated with shareholders’ increased loss aversion as a result of undergoing financial losses. The results show that acquisitions carried out by CEOs with risk-averse inducing compensation (inside debt) before and during the financial crisis creates greater shareholder gains than counterpart M&As by CEOs with risk-seeking (convex) compensation. However, this pattern is reversed in the post-crisis period, suggesting that equity holders’ risk tolerance is amplified after the financial crisis, consistent with the prospect theory predicting that economic agents become more risk-seeking subsequent to suffering a financial loss.
Essay 2 investigates shareholder reactions to CSR investments undertaken by firms under the helm of CEOs with risk-averse (risk-seeking) inducing compensation contracts. The evidence shows that CSR announcements carried out by CEOs with risk-averse (risk-seeking) inducing compensation generate higher (lower) cumulative abnormal returns and post-CSR long-term performance. This pattern holds under a battery of robustness checks. In addition, firms led by CEOs with risk-averse (risk-seeking) inducing compensation contracts are less (more) likely to engage in excessive CSR decisions and associated with greater (lower) CSR information disclosure and improved financial performance.
Essay 3 explores the impact of CEO mobility on M&As. Using ability and willingness to switch jobs as a proxy for CEO mobility, the evidence shows that acquiring CEOs’ mobility has a positive effect on the propensity to engage in value-increasing M&A deals. In addition, acquiring firms led by more (less) mobile CEOs are associated with higher (lower) short-term shareholder gains, realize better (worse) post-M&A long-term performance, and tend to use cash (stock) to finance M&A transactions. The empirical results are robust to potential omitted variable bias and self-selection bias.
Overall, this dissertation contributes to the finance and business literature by reconciling some of the gaps left by prior studies based on unexplored thus far key managerial characteristics that truly matter in corporate decision making. Furthermore, this work empirically validates and refines recently proposed measures of CEO potential mobility that can potentially be used to address additional research issues in the future.
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"Three Essays on CEO Characteristics and Corporate Decisions"
(2019). Doctor of Philosophy (PhD), Dissertation, , Old Dominion University, DOI: 10.25777/q1qv-my23