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How CEO Wealth Affects the Riskiness of a Firm

Author

Listed:
  • Sonik Mandal
  • Charlie Swartz
  • Sanjib Guha
  • Carl B. McGowan Jr.

Abstract

The objective of this paper is to analyze the relationship between the ownership level of managers and the risk averse behavior of the firm. We measure the ownership level of the managers by the ratio of their ownership of the company relative to their total wealth for a sample of 69 individuals from the Forbes 400 list of the wealthiest individuals in the world for the period from 2001-11 using an unbalanced panel data analysis. The dependent variable is the Altman Z-score of each firm and we further test these relationships using financial leverage. The independent variables are delta and Vega of the option portfolio of the manager, R&D for the firm, total assets, the age of the manager, the tenure of the manager, stock holding of the manager, CEO/Chair duality of the manager and firma age. The Z-score is statistically significantly related to size, CEO age, CEO wealth, and duality. Financial leverage is not statistically significantly related to any of the independent variables.

Suggested Citation

  • Sonik Mandal & Charlie Swartz & Sanjib Guha & Carl B. McGowan Jr., 2019. "How CEO Wealth Affects the Riskiness of a Firm," Applied Economics and Finance, Redfame publishing, vol. 6(4), pages 36-40, July.
    • Handle: RePEc:rfa:aefjnl:v:6:y:2019:i:4:p:36-40
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    References listed on IDEAS

    as
    1. Bo Becker, 2006. "Wealth and Executive Compensation," Journal of Finance, American Finance Association, vol. 61(1), pages 379-397, February.
    2. Saunders, Anthony & Strock, Elizabeth & Travlos, Nickolaos G, 1990. "Ownership Structure, Deregulation, and Bank Risk Taking," Journal of Finance, American Finance Association, vol. 45(2), pages 643-654, June.
    3. Edward I. Altman, 1968. "The Prediction Of Corporate Bankruptcy: A Discriminant Analysis," Journal of Finance, American Finance Association, vol. 23(1), pages 193-194, March.
    4. Edward I. Altman, 1968. "Financial Ratios, Discriminant Analysis And The Prediction Of Corporate Bankruptcy," Journal of Finance, American Finance Association, vol. 23(4), pages 589-609, September.
    5. Rogers, Daniel A., 2002. "Does executive portfolio structure affect risk management? CEO risk-taking incentives and corporate derivatives usage," Journal of Banking & Finance, Elsevier, vol. 26(2-3), pages 271-295, March.
    6. John D. Knopf & Jouahn Nam & John H. Thornton, 2002. "The Volatility and Price Sensitivities of Managerial Stock Option Portfolios and Corporate Hedging," Journal of Finance, American Finance Association, vol. 57(2), pages 801-813, April.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    CEO wealth effect; firm riskiness; unbalanced panel data analysis; Altman Z-score;
    All these keywords.

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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