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CEO Risk Preference and Investing in R&D

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  • A. Rashad Abdel-Khalik

Abstract

type="main"> This study aims at: (1) developing an index to measure CEO risk tolerance using publicly available data, and (2) examining the association between this index and investment in risky projects. Using relative pay-at-risk as a proxy for risk preference (tolerance) is a new proposition and is supported by having significant association with CEOs' socio-demographic variables—the variables often studied in connection with risk aversion. Furthermore, this risk preference indicator has a positive association with risk-taking behaviour as proxied by R&D expenditures. The in-sample estimation and out-of-sample predictions support (a) using relative pay-at-risk as a valid proxy for risk tolerance, and (b) finding statistically significant positive association between this measure and R&D expenditures. The association has different degrees of strength for nine out of 11 industries.

Suggested Citation

  • A. Rashad Abdel-Khalik, 2014. "CEO Risk Preference and Investing in R&D," Abacus, Accounting Foundation, University of Sydney, vol. 50(3), pages 245-278, September.
  • Handle: RePEc:bla:abacus:v:50:y:2014:i:3:p:245-278
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    File URL: http://hdl.handle.net/10.1111/abac.12029
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    2. repec:bla:abacus:v:53:y:2017:i:3:p:319-348 is not listed on IDEAS
    3. repec:bla:ausecp:v:57:y:2018:i:3:p:238-249 is not listed on IDEAS
    4. Jansen, Anika & Pfeifer, Harald & Raecke, Julia, "undated". "Only the brave? Risk and time preferences of decision makers and firms’ investment in worker training," Research Memorandum 004, Maastricht University, Graduate School of Business and Economics (GSBE).

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