Investigating executive traits and corporate actions
This dissertation includes three essays on executive traits and various corporate consequences. In the first essay, we document a unique type of CEOs who are not always selfish, that is, altruistic CEOs. Specifically, we find evidence that when faced with weak corporate governance, altruistic CEOs are less likely to initiate value-destroying acquisitions, where we construct altruistic CEOs using their personal donation records to charities. Furthermore, this difference between altruistic CEOs and their peers are stronger when corporate governance is weaker, indicating that not all CEOs are always self-interested. In addition to corporate takeovers, we show that altruistic CEOs are less likely to engage in corporate wrongful activities, resulting in fewer lawsuits against the firm, fewer earnings manipulations, and lower insider trading profits. We contribute to the standard agency theory by showing that managers are not universally self-interested and identify a possible measure to spot more selfless managers by using charitable donations. In the second essay, we find that firms managed by CEOs who make regular charitable donations have significantly higher CSR performance than those managed by CEOs who occasionally donate or never donate. To identify causation, we examine changes in firms’ CSR performance around exogenous CEO turnover events with a difference-in-difference approach. We find that when a non-routine-donor CEO or non-donor CEO is replaced by a routine donor CEO, the firm’s CSR performance improves. Also, using natural disasters as quasi-natural experiments that increase public awareness about CSR, we find firms managed by routine donor CEOs increase their firm’s CSR performance more than firms managed by non-routine-donor CEOs after the shocks. Our results are consistent with behavioral consistency theory which predicts that a CEO’s personal socially responsible behavior can predict his firm’s socially responsible engagement. Overall, we provide important new evidence on why firms engage in CSR and identify a new CEO characteristic that can predict such engagements. In the third essay, we investigate the relationship between the CEO and the CFO focusing on one of the visible cultural attributes, age. Substantial age dissimilarity between the two, giving rise to cognitive conflicts, increases the difficulty of communications and may destroy firm value. We measure this age dissimilarity using the age gap between the CEO and the CFO to investigate its correlation with the firm’s financial performance. We find evidence showing that firm performance is negatively correlated with this age gap. As the high-tech industries require more efficient and timely communications, the age gap effects are stronger for those firms. Further, when human capital is of more importance, that is, for younger firms, the age gap effects are also stronger. As an alternative to age-based analysis, we also analyze the effects of a generational gap between the CEO and the CFO. We find that firm value tends to be lower when the generational gap exists between the two.