Working Paper: NBER ID: w27487
Authors: Antoinette Schoar; Kelvin Yeung; Luo Zuo
Abstract: Tracking the movement of top managers across firms, we document the importance of manager-specific fixed effects in explaining heterogeneity in firm exposures to systematic risk. In equilibrium, manager fixed effects on systematic risk are positively related with manager fixed effects on stock returns. These differences in systematic risk are partially explained by managers’ corporate strategies, such as their preferences for internal growth and financial conservatism. Managers’ early-career experiences of starting their first job in a recession also contribute to differential loadings on systematic risk. These effects are more pronounced when managers wield more influence, as in smaller firms and firms that do not have an independent board. Overall, our results suggest that managers play an important role in shaping a firm’s systematic risk.
Keywords: systematic risk; managerial styles; fixed effects; corporate strategies
JEL Codes: G12; G30
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| manager fixed effects (C23) | systematic risk (G12) |
| manager fixed effects (C23) | stock return fixed effects (G12) |
| managerial style (M54) | systematic risk (G12) |
| managers' corporate strategies (L21) | systematic risk (G12) |
| managers' early-career experiences (M54) | systematic risk (G12) |
| managerial style (M54) | stock returns (G12) |
| managerial style (M54) | risk-taking behavior (D91) |