Three essays on empirical studies of the impact of CEO characteristics on corporate finance strategy

Abstract

that is, firm performance is affected by the strategic decisions shaped by managerial capabilities, which are fundamentally related to the background and characteristics of CEOs. Based on the Upper Echelon Theory, many following studies that examine the direct relationship between the CEO characteristics and the various strategic choices of firms are conducted, however a study that examines the relationship between the CEO characteristics, corporate strategy, and firm performance from an expanded perspective of Upper Echelon Theory is insufficient. Due to the lack of data, the empirical analysis of the characteristic effects of Korean CEOs has been rarely conducted. Although the firm’s response when an exogenous shock occurs may appear differently depending on the characteristics of the CEO, only the direct relations between CEO characteristics and corporate strategy has been revealed. Therefore, I try to empirically examine the effect of CEO characteristics in two aspects. First, I analyze the impact of CEO educational background on the corporate cash policy and external financing choices. In Korea, the proportion of CEOs majoring in business and science or engineering is the highest, however there are statistically significant differences in both policies depending on their major. Second, I analyze the investment policies and effectiveness when a terrorist incident occurs depending on the CEO overconfidence level. In the case of U.S., when firms are directly or indirectly exposed to terrorism, they generally tend to reduce their investment policies and accumulate cash asset, however the degree of investment and effectiveness of investment differ depending on the CEO overconfidence level.

When deciding on corporate financial strategy, the Chief Executive Officer (CEO) choose a financial choice that maximizes the corporate profit. Nevertheless, the Upper Echelon Theory posits that strategic decisions of a firm are affected by upper echelon characteristics