Last week, we focused on the age of the CEO
and whether this influences the amount of risk he/she takes. In this blog
article, we are getting a little more personal. We believe that personal
characteristics of CEOs matter for the decisions they make on behalf of the
firm(s) that they lead. Studies have researched different characteristics that might have an
influence on taking risks, of which we will discuss two. First, we will
illustrate gender differences. Second, we will look at the relationship status of
the CEO.
Gender differences in taking risks
A lot of research has been done about the
differences between men and women concerning taking risks. Generally, men tend
to take more risks than women. Different studies conclude that this is because of economic and evolutionary reasons. This gender difference gets even larger when
stress kicks in. Men tend to take more risks when they are under stress, while
women tend to take less risks under stress.
People also perceive that women are more
risk averse than men. This can result in women getting less support for
risk-taking activities. Also, women tend to focus more on the effect the risk
will have on the people involved, while men tend to focus more on the
probability that the objectives will be hit. Because of
this, it’s more likely that women take decisions that benefit everyone and not
only the top level of the company. They involve others in the decision-making
process, leading to a more cooperative feeling in the firm. A study by Chris Bart has shown that this results in better business decisions and concludes that
companies with female directors perform better and have less risk to go into
bankruptcy.
What about marital status?
An American study by the National Bureau of Economic Research showed that the stocks of companies with CEOs who are single
are riskier than companies with married CEOs. Single CEOs tend to spend more
money on R&D and acquisitions. Both investments are risky, meaning that
they can either result in growth or a lot of trouble. The stock is therefore more
volatile and thus riskier. Single CEOs don’t let competition or other warning signs
slow them down. However, married CEOs tend to scale down the investments when
risk increases. The researchers argue that single CEOs tend to take more risk
because they want to impress potential partners. Unfortunately, there were not
enough female CEOs in their sample for the results to be significant, thus we
are not sure whether there is a difference between single male and single
female CEOs.
