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CEO power and firm risk at the onset of the 2007 financial crisis and the COVID-19 health crisis: international evidence

Author

Listed:
  • Hamad Aldawsari

    (University of Southampton
    Saudi Electronic University)

  • Taufiq Choudhry

    (University of Southampton)

  • Di Luo

    (University of Dundee)

Abstract

We investigate the association between CEO power and firm risk at the onset of the global financial crisis in 2007 and the COVID-19 pandemic health crisis in 2020. Examining an international sample of publicly listed firms in the G7 nations between 2006 and 2021, we show that firms led by CEOs with greater power are exposed to higher risk than firms led by CEOs with lesser power. The result is primarily driven by the impact of CEO power on idiosyncratic risk rather than systematic risk. Further, we find that powerful CEOs tend to be more cautious and conservative during crises that they have no reference for or experience of, as in the case of the pandemic, during which the positive power–risk associations are less pronounced. Nevertheless, the power–risk association remains relatively unchanged during the more familiar financial crisis. This study has important implications for firms, investors, regulators, and policymakers.

Suggested Citation

  • Hamad Aldawsari & Taufiq Choudhry & Di Luo, 2025. "CEO power and firm risk at the onset of the 2007 financial crisis and the COVID-19 health crisis: international evidence," Review of Quantitative Finance and Accounting, Springer, vol. 64(4), pages 1633-1670, May.
    • Handle: RePEc:kap:rqfnac:v:64:y:2025:i:4:d:10.1007_s11156-024-01347-4
    DOI: 10.1007/s11156-024-01347-4
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    More about this item

    Keywords

    CEO power; Risk-taking; Financial crisis; COVID-19 pandemic;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • G01 - Financial Economics - - General - - - Financial Crises
    • J16 - Labor and Demographic Economics - - Demographic Economics - - - Economics of Gender; Non-labor Discrimination

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