Proceedings of the 2nd World Conference on Business, Management, and Economics
Year: 2024
DOI:
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Powerful CEO and Firm Risk at the Onset of the Financial Crisis 2007 and the Covid-19 Crisis: An International Evidence
Hamad Aldawsari, Taufiq Choudhry and Di Luo
ABSTRACT:
We investigate the association between CEO power and firm risk at the onset of the global financial crisis 2007 and the health crisis COVID-19 pandemic 2020. Examining an international sample comprising of public listed firms in the G7 nations between 2006 and 2021, we show that firms led by CEOs with greater power are exposed to higher risk compared to firms led by CEOs with less power. The result is primarily driven by the impact of CEO power on idiosyncratic risk rather than systematic risk. Further, we find that powerful CEOs tend to be more cautious and conservative during crises that they have no reference or experience about (the case of COVID health crisis), and hence, the positive power-risk associations are less pronounced during the Covid crisis. Nevertheless, the power-risk association remains relatively unchanged during the ‘familiar’ financial crisis. This study has important implications for firms, investors, regulators, and policymakers.
keywords: CEO power, Risk-taking, Financial crisis, COVID-19 pandemi