An Exposition on CEO Traits that Affect Corporate Decision Making

Abstract

Jensen & Meckling (1976) state that managers make decisions to maximize their personal utility, and their utility function differs from that of their firm. This possibility implies that a manager's characteristics that affect their utility also sway their firm-level decisions away from valuemaximizing optimality. I obtain a set of CEO personal characteristics reported on their public records and investigate how those characteristics affect their professional decision-making. The first chapter investigates how CEOs political beliefs affect their firm’s corporate social responsibility. CEOs hold diverse social and economic ideological beliefs that their political party affiliation might not accurately represent. I obtain a CEO’s party affiliation through their voter registrations and separately measure the CEO’s social and economic ideological beliefs by choosing which United States Congresspersons to support financially. Then, I investigate whether a CEO’s party or ideology relates to their firm’s corporate social responsibility (CSR), as measured by MSCI. There is no relation between a CEO’s party and their firm’s CSR, but firms with a more conservative CEO have lower CSR. Specifically, firms led by a more economically conservative CEO score lower in the environmental pillar. In addition, firms with a more socially conservative CEO have lower scores in the environmental and employee pillars. Further tests indicate that these ideological effects are separate from the CEO’s party and suggest that capturing managerial politics through party-based measurements does not accurately represent their ideological drivers. Secondly, I investigate whether experience in natural environments affects the firm’s environmental performance. CEOs who participate in hunting and fishing benefit both by 3 appreciating natural environments and through permanently consuming natural resources. We examine whether CEOs who hunt and fish make different environmental decisions and find that firms led by CEOs who obtain the most hunting and fishing licenses have lower environmental performance as measured by MSCI-KLD. This effect is strongest in the environmental category of climate change, but also extends to pollution, waste, and the protection of natural capital. Furthermore, firms led by CEOs with the most hunting and fishing licenses are significantly more likely to pay a regulatory settlement for an environmental regulatory infraction. The third chapter investigates if a CEO’s relative age, assigned by a mandatory start of school cutoff when they enter the schooling system, affects their career performance. The relative-age effect suggests that older individuals within a cohort are more successful. This study investigates if the relative-age effect exists for CEO’s in the S&P 1500 by analyzing the distribution of their relative age. We utilize an identification strategy that allows us to calculate a CEO’s relative age in months and enables us to resolve known identification problems. We find no support for the existence of the relative-age effect for CEOs either by season of birth or relative age in months. On the whole, the distribution of CEO birth dates is similar to the US population.