Working Knowledge
Business Research for Business Leaders
23 Aug 2016Working Paper Summaries

CEO Personality and Firm Policies

by Ian D. Gow, Steven N. Kaplan, David F. Larcker, and Anastasia A. Zakolyukina
This study analyzes the linguistic content of the Q&A portion of more than 70,000 conference calls in order to explore the relationship between individual traits of senior executives, the investment and financing choices made by these executives, and firm performance. Among the findings, openness is positively associated with R&D intensity and negatively associated with net leverage. Conscientiousness is negatively associated with growth. In performance tests, extraversion is negatively associated with both contemporaneous and future return on assets and cash flow.

Author Abstract

Based on two samples of high quality personality data for chief executive officers (CEOs), we use linguistic features extracted from conference calls and statistical learning techniques to develop a measure of CEO personality in terms of the Big Five traits: agreeableness, conscientiousness, extraversion, neuroticism, and openness to experience. These personality measures have strong out-of-sample predictive performance and are stable over time. Our measures of the Big Five personality traits are associated with financing choices, investment choices, and firm operating performance.

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