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How testosterone affect the behaviour of CEOs

How testosterone affect the behaviour of CEOs

Does testosterone affect the behaviour of CEOs and does this affect the performance of acquisitions.’

In top echelon of corporate administration, the literature stemming from Bertrand and Schoar (2003) discovers significant effect from the traits of your CEO on organization decision making. In the personality entrance, the association between CEO overconfidence and business conduct and efficiency is widely examined. For instance, the affect of CEO overconfidence or selfattribution prejudice on business purchase (Malmendier and Tate, 2005) acquisitions (Kim, 2013 Malmendier and Tate, 2005) and advancement (Hirshleifer, Very low, and Teoh, 2012) have been analyzed. Just recently, scientists learn that much more biological characteristics of the CEOs are associated with business economic plans and gratifaction. Mayew, Parsons, and Venkatachalam (2013) discover that CEOs with decrease sound pitch tend to manage larger firms. Among male CEOs, Wong and Ormiston (2012) discover that the CEOs with a lot more assertive face supply far better firm efficiency, while Jia, vehicle Lent, and Zeng (2014) find that masculine faced CEOs will probably misreport bookkeeping statements to reign over competition in the market. CEOs of sizeable companies and bankers worldwide are already criticized with regard to their masculine and androgenic hormone or testosterone-driven customs especially right after the economic crisis in 2008 (Adams and Ragunathan, 2012 Sherman, 2012).4 Simply how much does the masculinity in the CEO improve the risk of the business? Literature in anthropology and neuroendocrinology shows that research workers can proxy the masculinity in the CEO by calculating the CEO’s skin capabilities, such as facial thickness-to-height percentage (fWHR, hereafter) (Stirrat and Perrett, 2012 Wong and Ormiston, 2012 Jia, vehicle Lent, and Zeng, 2014). Stretching the literature, we research whether the CEOs with much more strong confronts make your business a lot more high-risk, provided their propensity of risk looking for. We use fWHR from the CEO to proxy his masculinity. Whether facial masculinity is straight impacted by male growth hormone, a steroid hormone that hard disks a person to get far more chance to take up dominant position within a rivalry for natural choice, continues to be in controversy within the literature. Verdonck et al. (1999), Nie (2005), Thornhill and Moller (197), Thornhill and Gangestad (1999), and Lindberg et al. (2005) document that more male growth hormone during pubertal stage definitely makes the face bone fragments grow to get more strong with higher width-to-height ratio. Lb, Penton-Voak, and Surridge (2009) learn that more manly faced men display increased moving male growth hormone level after profitable a competitive project than significantly less strong encountered guys do. As opposed, trying out 91 Tsimane tribe adolescents in South American jungle, Hodges-Simeon et al. (2016) file that fWHR is not really impacted by pubertal androgenic hormone or testosterone level. Nonetheless, after they management for the age of the subject areas, they still find important connection between fWHR and testosterone. In addition, an individual’s face width to height proportion (fWHR, hereafter) will not alter significantly after a while (Jia, truck Lent, and Zeng, 2014), and Lefevre et al. (2013) realize that fWHR is significantly positively linked with both the degrees of baseline (circulating) and reactive male growth hormone. Penton-Voak and Chen (2004) find that male with facial masculinity have higher testosterone level in his saliva. The level of testosterone is thought to be associated with the person’s behaviors through neural mechanisms (Dabbs and Morris, 1990; and Mehta and Beer, 2009). Studies have uncovered that a set of related behavioral characteristics are associated with the testosterone levels. Those include aggression (e.g., Ancher, 2006), sensation seeking (e.g., Roberti, 2004), hostility (Hartgens and Kuipers, 2004), dominance (Mazur and Booth, 1998), egocentrism (e.g., Eisenegger, Naef, Snozzi, Heinrichs, and Fehr, 2010), and risk seeking (e.g., Apicella, Dreber, Campbell, Gray, Hoffman, and Little, 2008).5 Apicella et al. (2008) find that men with masculine face as a proxy for higher testosterone exposure during puberty are more likely to make risky financial decisions. Sapienza, Zingales, and Maestripieri (2009) and Stenstrom, Saad, Nepomuceno, and Mendemhall (2011) show that risk aversion is negatively related to prenatal testosterone exposure measured by the ratio of the length of the 2nd (index) finger to the length of the 4th (ring) finger (2D:4D ratio).6 Coates, Gurnell, and Rustichini (2009) find that lower 2D:4D ratio of male traders have better trading performance.7 However, whether testosterone is really driving the risk taking behavior is also debated. Schipper (2015) do not find significant relation between testosterone and risk aversion in competitive bidding. Despite the debatable relations between fWHR and testosterone, and between testosterone and risk seeking, researchers have found significant association between fWHR and masculine (risk seeking) behavior. Carré and McCormick (2008) and Christiansen and Winkler (1992) find that high fWHR of male predicts more aggressions. Haselhuhn and Wong (2011) find that high fWHR predicts more cheating and deception, Campbell, Dreber, Apicella, Eisenberg, Gray, Little, Garcia, Zamore, and Lum (2010) find that it predicts sensation seeking behavior. Moreover, Apicella (2011), Apicella, Dreber, Campbell, Gray, Hoffman, and Little (2008), and Wong et al. (2011) find that fWHR predicts more competition driven behavior and higher risk taking of the person. Given that fWHR is widely accepted as facial masculinity (sexually dimorphic), these findings enables us to investigate whether more masculine CEOs influence the firm to be more risky. Our argument is a bit different from proposing more gender diversity as in Adams and Ragunathan (2012) or Faccio, Marchica, and Mura (2014). Instead, our argument is whether, within the same gender (specifically male) group, the different level of masculinity of the CEO would be driving the firm to be systematically different in terms of risk. A recent report by Perman (2012) reveals that testosterone therapy is becoming popular among Wall Street traders and some corporate CEOs to be more masculine and be more willing to take risk. Therefore, it is imperative to study the impact of the masculinity of the CEO on the risk of the firm. We start by collecting the facial photographs of 3,298 unique CEOs that had CNBC interviews over 1997~2009, because the CEOs that had interviews by one of the most influential financial television networks may have more photographs available in the internet. Then we narrow down to 1,387 CEOs with the best quality pictures agreed by three researchers. Then we further narrow down to 558 CEOs that are covered in Execucomp. Controlling for selection bias to be interviewed by CNBC, our multiple regression analyses show significantly positive association between fWHR and the risk of the firm measured by daily return volatility of the firm. The finding is robust when we control for CEO’s overconfidence based on option holdings (Malmendier and Tate, 2005), vocal masculinity measures – such as voice pitch and formant position of the voice (Mayew, Parsons, Venkatachalam, 2013) -, and CEO’s risky hobbies (Cain and McKeown, 2014). Also, to make sure that what we find is not driven by some extreme values of our explanatory variable, we use alternative measures of fWHR, such as the inverse rank of fWHR (highest (lowest) fWHR CEO having the largest (smallest) ordinal number), the dummy variables that are one if the CEO belongs to the highest quintile, tercile, and half of fWHR and find consistent results. One might question whether the result is driven by the crosssectional variation between the firms that had only one CEO throughout the sample period. Therefore, we narrow down to the firms that had CEO turnovers and find consistent results. One may question whether being selected as interviewee in CNBC creates too strong a selection bias to be safeguarded with Heckman selection model. To tackle the issue, we measure fWHR of all the persons in the Execucomp as the CEO in any of the years from 2007 to 2009 and replicate the tests and report robust results in the Appendix.