Fifty shades of CEO duality: CEO personal risk preference, duality and corporate risk-taking

Purpose - This study investigates whether and how chief executive officers (CEOs) with personal risk-taking preference (expressed in owning a pilot license) will act differently when they are vested with additional power serving as board chairs. Design/methodology/approach - Regressions analyses are performed using a sample of Standard and Poor’s (S&P) 1,500 firms with available data during 1996–2009. CEO's risk-taking outcomes are measured using firms' total risk, idiosyncratic risk and research and development expenditures (R&D) investment. Findings - Firms led by pilot CEOs have greater firm risks, yet CEO duality attenuates the relationship. Further channel tests show that CEO duality suppresses CEO's risk-taking tendencies through managers' reputation concerns. Research limitations/implications - The findings highlight the importance of incorporating human factors into consideration of appropriate governance structures for a firm. Future studies can expand the existing data and further explore the relationship between human factors and governance structures on other firm strategies. Practical implications - Regulators may focus mainly on regulatory setting based on the “best practice” of governance yet overlook human influence in corporate dynamics. For shareholders, hiring managers with distinct styles will change corporate outcomes but different governance mechanisms could be devised to adapt to CEOs with various personalities. Originality/value - Prior studies show that both CEO personal preferences and firms' governance structure affect corporate policies, and this paper complements prior studies by exploring how the two may interact to shape corporate policy and its outcomes. This paper also adds to the literature showing that CEO duality could serve a disciplinary role.