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How Does CEO Age Affect Firm Risk?
Author(s) -
Chowdhury Jaideep,
Fink Jason
Publication year - 2017
Publication title -
asia‐pacific journal of financial studies
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.375
H-Index - 15
eISSN - 2041-6156
pISSN - 2041-9945
DOI - 10.1111/ajfs.12174
Subject(s) - affect (linguistics) , equity (law) , corporate governance , investment (military) , business , monetary economics , economics , demographic economics , finance , psychology , communication , politics , political science , law
Abstract Previous research demonstrates that older CEO s are associated with lower firm equity risk and fewer R&D expenditures. We examine the risk‐taking behavior of CEO s and find that not only do older CEO s invest in less R&D, they do so sub‐optimally, in the sense that CEO age distorts the effect of q on R&D investment decisions. We find that it is specifically through the channel of R&D investment that CEO age is associated with the reduction in firm equity risk. Consistent with the sub‐optimality of these distortions, firms with more effective corporate governance do not exhibit these associations.