“Depression graduate” CEOs – the effect of economic downturn experience on firm risk-taking

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dc.contributor Aalto University en
dc.contributor Aalto-yliopisto fi
dc.contributor.advisor Torstila, Sami
dc.contributor.author Hollming, Anna
dc.date.accessioned 2019-07-14T16:06:11Z
dc.date.available 2019-07-14T16:06:11Z
dc.date.issued 2019
dc.identifier.uri https://aaltodoc.aalto.fi/handle/123456789/39267
dc.description.abstract This thesis examines the effects of having graduated during an economic depression on managerial risk-taking in a Nordic context. In the beginning of 1990s, Finland and Sweden entered deep economic depressions that resulted in numerous bankruptcies and record-high unemployment rates. Recent studies from the US have suggested that CEOs who have graduated during an economic downturn follow more conservative financial policies, depicted by holding less leverage, for instance. The goal of this study is thus to test whether the findings for risk-averseness of graduates of economic downturns hold true also for the Finnish and Swedish economic “depression graduate” CEOs of the 1990s crisis. The study comprises of 532 non-financial firms listed in Nasdaq Helsinki and Stockholm stock markets in years 2010-2018. Out of all the firm-year observations, 20.2% come from firms that have CEOs with economic depression graduation background. I conduct Ordinary Least Squares regressions for a CEO-firm year matched panel data to estimate the relation between “depression graduate” CEOs and variables related to firm financial policies and risk-taking. I additionally apply difference-in-differences method that allows to further analyze manager-related changes in financial policies in respect of CEO transitions. Differences between industries, years and the two countries are controlled in both analyses. Empirical evidence of the study does not support the hypothesis of CEO’s economic downturn graduation experience being linked to more conservative financial policies. In turn, the statistically significant results suggest that “depression graduate” CEOs’ firms follow more aggressive financial policies than the baseline of firms, by having +2.0% higher leverage and holding -1.4% less cash than others. I also find that “depression graduate” CEO firms’ stock returns are -2.9% less volatile per annum, suggesting that while found to be following more aggressive financial policies, “depression graduate” CEOs’ firms seem to be less risky as assets. In terms of leverage, I find evidence of country-level differences in risk-taking, as firms with Swedish depression graduate CEOs are found to have significantly higher leverage than their Finnish peers. I also corroborate previous findings for gender and age differences on risk-taking: in line with prior literature, I find evidence of Finnish and Swedish female CEOs following less risky financial policies, and that an older CEO age is linked to more risk-averse behavior. The findings suggest that different managerial characteristics play roles in firm risk-taking also in the Nordic market context. The results for Nordic markets are however not yet conclusive, hence there remains potential for future research. By examining these markets, we can learn about the differences and similarities Nordic CEOs exhibit in relation to previous US-based studies, and understand the effects these characteristics have on our firms’ policies and performance. en
dc.format.extent 66+5
dc.language.iso en en
dc.title “Depression graduate” CEOs – the effect of economic downturn experience on firm risk-taking en
dc.title Evidence from Finnish and Swedish stock-listed companies and the economic crisis of 1990s en
dc.type G2 Pro gradu, diplomityö fi
dc.contributor.school Kauppakorkeakoulu fi
dc.contributor.school School of Business en
dc.contributor.department Rahoituksen laitos fi
dc.subject.keyword CEO behavior en
dc.subject.keyword economic depression en
dc.subject.keyword financial policies en
dc.subject.keyword risk-taking en
dc.identifier.urn URN:NBN:fi:aalto-201907144331
dc.type.ontasot Master's thesis en
dc.type.ontasot Maisterin opinnäyte fi
dc.programme Finance en
dc.location P1 I fi
local.aalto.electroniconly yes
local.aalto.openaccess no


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