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How a CEO’s Personality Influences Stock Risk and Returns

Assistant Professor of Strategy Joseph Harrison’s research into how CEO personality affects market value was featured in Harvard Business Review and on TEK2day.

March 22, 2021

By Elaine Cole

Joseph HarrisonCEOs are the face of the company, today more than ever. It makes sense that, with constant news and social media coverage, these leaders’ observable tendencies could influence investors’ perceptions of the firm and therefore its market value.

“CEOs have a lot of interaction with the external market… The world has opened up and investors are getting information from a lot of different sources,” Harrison said on an episode of the TEK2day podcast featuring his work. “It’s useful for companies to understand that their executives are being watched and how the market responds to those executives based on their personality.”

At the same time, “many CEOs seem unconcerned with managing external perceptions,” Harrison wrote in a summary of his research for Harvard Business Review, citing examples of PayPal CEO Peter Thiel and Tesla CEO Elon Musk.

How does this affect the value of their firms?

Harrison spoke on TEK2day about how he and his colleagues sought to answer this question using the Big 5 personality traits: extroversion, conscientiousness, neuroticism, openness to experience and agreeableness.

They used open language machine learning methods to train algorithms to recognize the Big 5 personality traits of CEOs based on the language they used during the Q&A section of conference calls with equity analysts.

“During the Q&A section of conference calls the questions are not always easily anticipated, so you get a more natural sense of their language use,” Harrison explained. “It’s better than using [a company’s] social media account or annual reports, where you’re not quite sure who is talking.”

In their research, Harrison and his colleagues calculated personality scores for more than 3,000 CEOs in the S&P 1500, and focused on the most observable traits of extroversion, conscientiousness and neuroticism.

“Firms of more conscientious CEOs tended to have lower levels of stock volatility, but were able to generate higher stock returns at increasing levels of risk. In contrast, firms of more neurotic and extroverted CEOs tended to experience higher levels of stock volatility, but were less able to translate this high risk into higher shareholder returns. In fact, for the firms of highly extroverted CEOs, there was a negative relationship between stock risk and shareholder returns,” Harrison wrote in Harvard Business Review.

Harrison’s research has garnered interest from academic and non-academic business publications as well as specific companies.

Related Articles:

Perception Is Reality: How CEOs’ Observed Personality Influences Market Perceptions of Firm Risk and Shareholder Returns.” Academy of Management, J. Harrison, G. R. Thurgood; S. Boivie & M. Pfarrer, 2020.

How a CEO’s Personality Affects Their Company’s Stock Price,” in Harvard Business Review.

Cult of Personality: A Deep Dive on CEO Personality Research,” on TEK2day.

TEK2day · Ep. 397: Cult of Personality - A Deep Dive On CEO Personality Research
Photo: Joseph Harrison

Joseph Harrison

Assistant Professor of Strategy
Management and Leadership Department

Neeley 3354
817-257-4898
j.s.harrison@tcu.edu