eThesis - Kauppakorkeakoulun sähköiset gradut

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The purpose of this thesis is to investigate the relationship between CEO age and firm risk. There is extensive evidence in the academic literature suggesting that age is negatively related to risk seeking in decision-making and investment behavior. Theoretical research on CEO risk seeking and tenure also supports the hypothesis to some extent. Empirical evidence on the relationship between CEO age and corporate risk supports the prediction of a negative relationship especially robustly.

The sample of this study consists of 2224 CEO observations from U.S. stock exchange listed companies. Observations are chosen from around CEO successions so that both the predecessor and the successor CEO are included in the sample. This paired sample design should enable excluding fixed firm effects from the analysis. The data is analyzed with IBM SPSS Statistics and Excel, using paired samples t-test, correlation and regression analysis.

Results of this thesis suggest that there is a negative relationship between CEO age and stock return volatility. CEO succession is also negatively related to volatility: CEO change triggers a decline in corporate risk. Furthermore, the relationship between CEO age and stock return volatility is moderated by CEO change. The relationship is still negative after the successions, but less pronouncedly.

The relationship between CEO age and corporate risk can be explained by either CEO impact or CEO-firm matching or (presumably) by both. The decline in the volatility triggered by CEO change might relate to decreasing investor uncertainty after the new CEO is appointed and has been in office for a while. Furthermore, the interaction effect between CEO change and age is possibly related to CEO career horizon and tenure issues.