CEO power and firm risk at the onset of the 2007 financial crisis and the COVID-19 health crisis: international evidence
CEO power and firm risk at the onset of the 2007 financial crisis and the COVID-19 health crisis: international evidence
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.
Aldawsari, Hamad
86d8ff44-28d4-42c3-a341-250446b21f3f
Choudhry, Taufiq
6fc3ceb8-8103-4017-b3b5-2d38efa57728
Lou, Di
3d063711-ce16-4c5e-8c8b-5acae906a714
Aldawsari, Hamad
86d8ff44-28d4-42c3-a341-250446b21f3f
Choudhry, Taufiq
6fc3ceb8-8103-4017-b3b5-2d38efa57728
Lou, Di
3d063711-ce16-4c5e-8c8b-5acae906a714
Aldawsari, Hamad, Choudhry, Taufiq and Lou, Di
(2024)
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.
(doi:10.1007/s11156-024-01347-4).
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.
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hamad paper 1
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s11156-024-01347-4
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Accepted/In Press date: 21 August 2024
e-pub ahead of print date: 16 September 2024
Identifiers
Local EPrints ID: 494732
URI: http://eprints.soton.ac.uk/id/eprint/494732
ISSN: 0924-865X
PURE UUID: ce8cbc62-732d-4483-8a12-0b56435a11b7
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Date deposited: 14 Oct 2024 17:07
Last modified: 15 Oct 2024 01:36
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Author:
Hamad Aldawsari
Author:
Di Lou
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