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CEO Effects

Paper Session

Saturday, Jan. 4, 2020 10:15 AM - 12:15 PM (PDT)

Manchester Grand Hyatt, Seaport C
Hosted By: American Finance Association
  • Chair: Dirk Jenter, London School of Economics

The Effect of Managers on Systematic Risk

Antoinette Schoar
,
Massachusetts Institute of Technology
Kelvin Yeung
,
Cornell University
Luo Zuo
,
Cornell University

Abstract

Existing studies in the asset pricing literature assume that managers are interchangeable. We examine whether managers’ idiosyncrasies explain differences in firms’ systematic risk. To identify manager fixed effects, we construct a data set that tracks managers across different firms over time. Our results suggest that manager fixed effects are an important determinant of systematic risk and that managers exert greater influence on systematic risk in smaller firms. Managers’ preferences for internal growth (financial conservatism) are positively (negatively) related to manager fixed effects on systematic risk, but these preferences explain only a small fraction of the variation in manager fixed effects on systematic risk.

Life Is Too Short? Bereaved Managers and Investment Decisions

Clark Liu
,
Tsinghua University
Tao Shu
,
Chinese University of Hong Kong
Johan Sulaeman
,
National University of Singapore
Eric Yeung
,
Cornell University

Abstract

We examine whether bereavement affects managerial investment decisions. In two separate samples of actively managed mutual funds and publicly traded firms during 1999−2013, we find managers take significantly less risk after deaths in the family, compared to their matched peers. Funds managed by bereaved managers exhibit higher correlations with return factors, smaller tracking errors, lower active share measures and higher portfolio weights on larger stocks after the bereavement events. Firms managed by bereaved CEOs exhibit lower capital expenditures, fewer acquisitions, lower debt issuance, and lower CEO ownerships after the bereavement events. These documented long-term effects cannot be explained merely by short-term distraction. The risk-shifting patterns have negative implications on the performance of mutual funds and firms with bereaved managers.

The Impact of Financial Literacy on Medium and Large Enterprises – Evidence from a Randomized Controlled Trial in Mozambique

Claudia Custodio
,
Imperial College London
Diogo Mendes
,
Nova Business School
Daniel Metzger
,
Rotterdam School of Management

Abstract

A randomized controlled trial (RCT) with 74 medium and large companies in Mozambique identifies a positive treatment effect of a finance executive education programme for top managers on financial policies and firm profitability. Using survey data as well as accounting data, we find that managers adjust several financial policies in response of the treatment. The largest treatment effects are for policies related to working capital. We also find these policy changes related with efficiency gains. Our results suggest that relatively small and low cost interventions such as an 18-hour, in class, financial executive education program improves financial practices and can ultimately affect economic development.
Discussant(s)
Pavel Savor
,
DePaul University
Francisco Perez
,
Autonomous Technological University of Mexico (ITAM)
Bilal Zia
,
World Bank
JEL Classifications
  • G3 - Corporate Finance and Governance