Session 215

CEO Personality and Characteristics Influencing Decision Making

Track O

Date: Tuesday, October 9, 2012

Track L

Time: 17:30 – 18:45

Common Ground

Room: Meeting Room 2.1


Facilitator:

  • Anja Tuschke, University of Munich

Title: CEO Dominance: The Low End of the Construct

Authors

  • Jianyun Tang, Memorial University of Newfoundland

Abstract: The construct of CEO dominance – defined as the power of the CEO relative to other executives in the TMT – has been extensively examined for its effect on firm performance. However, research has focused on the high end of the construct where the CEO has dominant power but largely ignored the low end where the CEO has very limited power or is even not the most powerful executive in the TMT. In this study, I hypothesize and found preliminary empirical support for an inverted-U shaped relationship between CEO dominance and firm performance; specifically, firms with a CEO of modest power, on average, outperformed both those with a CEO of very dominant power and those with a CEO of very limited power.

Title: Differentiating between Loss Aversion and the House Money Effect in CEO Reactions to Firm Performance

Authors

  • Yuri Mishina, Imperial College London
  • Timothy Pollock, Penn State University
  • Nathan Bragaw, Louisiana State University

Abstract: This study attempts to differentiate between the influences of loss aversion and the house money effect on CEO decision making. We explore how performance relative to aspirations influences the risk that a CEO is willing to take with his/her personal compensation, as reflected in the mix between cash and incentive compensation and the number of exercisable, in the money options the CEO continues to hold. We also consider how the firm’s prominence influences these decisions. We find more support for predictions based on the house money effect than those based on loss aversion. Further, firm prominence appears to increase the likelihood the CEO will maintain riskier positions when performance is below aspirations, contrary to the CEO’s preferences.

Title: Enough is Enough: Antecedents and Outcomes of CEO Portfolio Rebalancing

Authors

  • Jason Ridge, University of Arkansas
  • Federico Aime, Oklahoma State University

Abstract: A considerable amount of compensation based research makes the assumption that CEO’s are risk averse due to an inability to mitigate investment risk. However, this assumption negates a key aspect of equity based compensation – its tradability. As such, we investigate the tradability aspect of equity-based compensation and how a CEOs ability to divest previously granted stock or exercised stock options impacts the CEOs firm ownership and the amount of risk within which they are willing to engage the firm. Our findings suggest that the accruing of additional stock in a CEOs employing firm further skews the CEOs asset allocation into a single firm thereby influencing the rebalancing of the CEOs portfolio. We also provide substantial evidence that both CEO portfolio rebalancing as well as the exercising of options by the CEO have a direct impact of firm risk.

Title: Hit or Miss? CEO Over and Underpayment and Earnings Management

Authors

  • Eric Fong, University of Alabama in Huntsville
  • Adam Wowak, University of Notre Dame
  • Vilmos Misangyi, Penn State University
  • Wafa Orman, University of Alabama-Huntsville

Abstract: A large body of literature focuses on executive risk taking in response to compensation, yet much remains unknown about how pay influences executive behaviors. Applying a prospect theory perspective, we argue that CEOs frame their overall pay situations in terms of gains or losses relative to expected pay levels. We then argue that this framing subsequently influences the likelihood of earnings management or manipulation. Preliminary results from a sample of over 3,000 CEOs provide support for our ideas. In arguing that CEO actions are influenced by the framing of overall pay situations as gains or losses, we contribute to the burgeoning literature that examines the effects of CEO over- and underpayment on subsequent organizational outcomes and, in particular, on actions that may be inappropriate.

Title: Seeing the Error of One\'s Ways? How CEO (Over)Confidence Influences Corporate Resistance to Feedback

Authors

  • Craig Crossland, University of Notre Dame
  • Guoli Chen, INSEAD
  • Shuqing Luo, National University of Singapore

Abstract: Firms often make mistakes, ranging from simple manufacturing overruns all the way up to catastrophic blunders like the recent BP-Deepwater Horizon oil spill in the Gulf of Mexico. However, there is considerable heterogeneity in the nature of corporate responses when faced with evidence that an error has taken place, and, therefore, in the likelihood that such errors will reoccur in the future. In this paper, we explore an important but understudied influence on firms’ responses to error feedback – a CEO’s characteristic level of confidence. Using the empirical context of voluntary corporate earnings forecasts, and a 15-year sample of the career forecasting behavior of over 300 individual CEOs, we find strong, robust evidence that firms led by highly confident CEOs are less responsive to corrective feedback.

All Sessions in Track O...

Sun: 08:00 – 09:15
Session 119: Strategic Leadership
Sun: 09:30 – 10:45
Session 120: Corporate Governance
Sun: 11:15 – 12:30
Session 122: Strategic Leadership and Corporate Governance Complementarities: Why we Are an IG
Sun: 15:15 – 16:30
Session 107: The Benefits of Experience: Vicarious and Otherwise
Mon: 08:00 – 09:15
Session 106: Why do Firms do Bad Things and What Do We Know about It?
Mon: 09:30 – 10:45
Session 103: Reputation: Organizational and Individual Dimensions
Mon: 13:30 – 14:45
Session 112: CEO and TMT Turnover: Firm Implications
Session 214: CEOs and Leadership
Mon: 16:30 – 17:45
Session 113: Large Shareholders are Doing it for Themselves
Tue: 08:00 – 09:15
Session 115: Board Member Characteristics and Board Diversity
Session 137: CEO Human Capital: Take a Little off the Top
Session 254: Capital Markets and Efficiency
Tue: 11:00 – 12:15
Session 111: Why Boards Look the Way They Do: Director Selection
Session 117: Heterogeneous Owner Types and their Influence
Tue: 14:15 – 15:30
Session 108: CEOs Matter, Don\'t They?
Session 116: Discretion and Compensation
Tue: 15:45 – 17:00
Session 114: Adoption of a Practice and its Implications
Tue: 17:30 – 18:45
Session 118: The TMT as a Unit
Session 215: CEO Personality and Characteristics Influencing Decision Making

All Sessions in Track L...

Sun: 08:00 – 09:15
Session 133: Transitioning from Faculty to Administrator: Building Strategic Human Capital
Sun: 09:30 – 10:45
Session 134: Management Practices across Firms and Countries
Sun: 11:15 – 12:30
Session 135: Linked Employer-Employee Data and Strategic Human Capital Research
Mon: 08:00 – 09:15
Session 144: Stars and Human Capital Flows
Mon: 09:30 – 10:45
Session 140: Knowledge Management & Knowledge Structures: Who knows?
Mon: 13:30 – 14:45
Session 112: CEO and TMT Turnover: Firm Implications
Session 138: Value Creation & Appropriation: Take the money and run
Mon: 16:30 – 17:45
Session 139: Impact of Human Capital Loss: Going Mobile
Tue: 08:00 – 09:15
Session 137: CEO Human Capital: Take a Little off the Top
Tue: 11:00 – 12:15
Session 143: The Strategic Human Capital Process: A look inside the sausage factory
Tue: 14:15 – 15:30
Session 141: Impact of the Acquisition & Loss of Human Capital: Putting a new spin on things
Tue: 15:45 – 17:00
Session 145: Individual Differences & Human Capital-based Advantage: Vive la différence
Tue: 17:30 – 18:45
Session 142: Social Networks & Human Capital: Tying things together
Session 215: CEO Personality and Characteristics Influencing Decision Making


Strategic Management Society

Prague