CEO EQUITY RISK BEARING AND STRATEGIC RISK TAKING: THE MODERATING EFFECT OF CEO PERSONALITY

We draw upon applied psychology literature to explore inter-agent differences in perceived risk to their equity when making strategic risk decisions. Our theory suggests behavioral agency’s predicted negative relationship between equity risk bearing and strategic risk taking is contingent upon four personality traits. Our empirical analyses, based on personality profiles of 158 CEOs of S&P 1,500 firms in manufacturing industries, indicates the relationship between executive risk bearing and strategic risk taking crosses from negative to positive for high extraversion, greater openness and low conscientiousness. These findings demonstrate that agency based predictions of CEO risk taking in response to compensation – and board attempts at creating incentive alignment using compensation – are enhanced by integrating insights from personality trait literature