Steve McKeon

Steve McKeon's research interests took root during his professional career in corporate finance. (Photo by Mark Simons)

Risky Business

Steve McKeon, PhD ’11, Finance

From the Virgin Group’s Richard Branson to the late businessman-turned adventurer Steve Fossett, risk-taking CEOs have always piqued public curiosity. For Steve McKeon, such high-flying individuals also inspire academic curiosity.

Along with fellow doctoral student Matt Cain (PhD ’07), now on the faculty of the University of Notre Dame, McKeon wondered if CEOs who took personal risks also took risks with their companies.

“We wanted to isolate risk-taking behavior outside the scope of the firm,” McKeon says. “Does the behavior of CEOs who take risks in their personal lives translate over to their professional lives? Does it impact corporate decision making?

Finding relevant data proved challenging, McKeon says. “We began with motor vehicle records, hoping to isolate CEOs with a lot of speeding tickets or those who ride motorcycles, for example. But that information is very difficult to obtain.”

“Does the behavior of CEOs who take risks in their personal lives translate over to their professional lives? Does it impact corporate decision making?"
McKeon and Cain eventually found reliable evidence through the Federal Aviation Administration, which maintains a database of all licensed pilots. “We ran a list of CEOs through the database using a computer script, and were able to identify about 200 public-company CEOs who also hold private pilot’s licenses.”

To examine the link between personal behaviors and corporate policies more closely, McKeon and Cain focused on a genetic personality trait known as “sensation seeking.” Prior psychological studies had shown that the desire to fly an airplane represents one of the highest predictors of sensation-seeking personalities, McKeon says.

“We found a variety of indicators to support our hypothesis that risk-taking CEOs are associated with riskier corporate policies,” he says. “These individuals take on higher leverage than their counterparts and are more active in mergers and acquisitions. The volatility of equity returns in their companies also is higher.”

With the research still in its early stages, McKeon and Cain refrain from making a general conclusion about the positive or negative impact that a CEO’s risk-taking behavior may have on a company’s performance.

“Firms are heterogeneous; it may be that risk-taking CEOs are good for some firms but not as good for others,” McKeon says. “Our evidence can be used during the hiring process to help boards better understand the behavioral tendencies of CEO candidates prior to selection.”

To learn more about Steve McKeon, visit his PhD student directory page and read his Q&A profile on the Krannert School’s website.

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