The Effect of Managers on Systematic Risk
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. 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 for smaller firms. Overall, our results suggest that managerial styles have important implications for asset prices.
We appreciate the helpful comments of Sanjeev Bhojraj, Robert Bloomfield, Ivor Cribben, Toomas Laarits, Pavel Savor, and Eric Yeung, as well as seminar participants at Cornell University, the 2019 Conference on Financial Economics and Accounting, and the American Finance Association 2020 Annual Meeting. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.