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Business is personal: How CEO personality influences agency costs
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DOI：10.1002/smj.70088.png)
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Abstract
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We examine whether CEO personality traits influence the likelihood of engaging in behaviors that impose agency costs on the firm. We use an established open-language machine learning program to measure CEO Big Five personality traits based on CEO remarks during earnings conference calls. We theorize and find that higher levels of agreeableness and conscientiousness in CEOs are associated with lower agency costs (operationalized here as unrelated diversification and the decoupling of CEO pay from firm performance), while higher levels of neuroticism are associated with higher agency costs. By revealing how CEO personality traits affect agency costs, our study offers a new perspective on the sources of agency problems and broadens the application of CEO Big Five personality traits to corporate governance.
Keywords:
agency costs
CEO personality
corporate governance
regression analysis
strategic leadership
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