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The relationship between managerial attributes and firm risk-taking

Mahdi Salehi (Faculty of Economics and Administrative Sciences, Ferdowsi University of Mashhad, Mashhad, Iran)
Arash Arianpoor (Economics and Administrative Sciences, Attar Institute of Higher Education, Mashhad, Iran)
Nader Naghshbandi (Economics and Administrative Sciences, Hakim Nezami Institute of Higher Education, Quchan, Iran)

The TQM Journal

ISSN: 1754-2731

Article publication date: 29 April 2021

Issue publication date: 10 June 2022

887

Abstract

Purpose

The main objective of the paper is to examine the relationship between managerial attributes (e.g. managerial entrenchment, managerial myopia and managerial overconfidence) and firm risk-taking on the Tehran Stock Exchange (TSE).

Design/methodology/approach

The study’s sample comprises 150 companies listed on the TSE from 2011 to 2017. Risk-taking is calculated as the standard deviation (SD) of stock return. Explanatory factor analysis was performed to calculate the weight of each of the five variables managerial ownership, board independence, chief executive officer (CEO) tenure, board compensation and CEO duality as a proxy for managerial entrenchment. The study by Anderson and Hsiao (1982) was also used to calculate managerial myopia, and the study by Schrand and Zechman (2012) was used to calculate managerial overconfidence.

Findings

The results indicate that the effect of managerial entrenchment and managerial myopia on risk-taking of listed firms on the TSE is positive and significant, implying that an increase in CEO entrenchment is likely to give rise to risk-taking. The authors conjecture that this finding could be due to the investment projects impairing the firm performance in the long run. Furthermore, the effect of managerial overconfidence on listed firms' risk-taking on the TSE is significantly negative. Since overconfidence is one of the traits of narcissism and corporate managers tend to be encouraged and admired, it is implied that they tend to make efficient and low-risk investments that ultimately reduce the firm risk-taking.

Originality/value

Several theoretical studies show that managerial behavior is a determining factor in the economy. One of the reasons which justify the originality of this study is the context and institutional environment. Undoubtedly, managerial behavior (e.g. managerial entrenchment, managerial myopia and managerial overconfidence) is expected to have some significant variations in developing countries compared to prevailing in developed countries, particularly in the Iranian stock market the economic sanctions. Furthermore, due to the direct impact of individuals' psychological and behavioral characteristics on their decisions and the effect of companies' risk-taking on increasing and decreasing shareholders and companies' wealth, this research is essential. Given the function of designed behavioral criteria for assessing risk-taking behaviors, the relationship between managerial attributes and firms' risk-taking is still unclear and investigated in this study.

Keywords

Citation

Salehi, M., Arianpoor, A. and Naghshbandi, N. (2022), "The relationship between managerial attributes and firm risk-taking", The TQM Journal, Vol. 34 No. 4, pp. 728-748. https://doi.org/10.1108/TQM-10-2020-0246

Publisher

:

Emerald Publishing Limited

Copyright © 2021, Emerald Publishing Limited

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