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The Risk Preferences of U.S. Executives

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  • Steffen Brenner

    (Department of International Economics and Management, Copenhagen Business School, 2000 Frederiksberg, Denmark)

Abstract

In this paper, I elicit risk attitudes of U.S. executives by calibrating a subjective option valuation model for option exercising data (1996 to 2008), yielding approximately 65,000 values of relative risk aversion (RRA) for almost 7,000 executives. The observed behavior is generally consistent with moderate risk aversion and a median (mean) RRA close to one (three). Values are validated for chief executive officers (CEOs) by testing theory-based predictions on the influence of individual characteristics on risk preferences such as gender, marital status, religiosity, and intelligence. Senior managers such as CEOs, presidents, and chairpersons of the boards of directors are significantly less risk averse than non-senior executives. RRA heterogeneity is strongly correlated with sector membership and firm-level variables such as size, performance, and capital structure. Alternative factors influencing option exercises are tested for their influence on RRA values. This paper was accepted by Brad Barber, finance .

Suggested Citation

  • Steffen Brenner, 2015. "The Risk Preferences of U.S. Executives," Management Science, INFORMS, vol. 61(6), pages 1344-1361, June.
    • Handle: RePEc:inm:ormnsc:v:61:y:2015:i:6:p:1344-1361
    DOI: 10.1287/mnsc.2013.1882
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