Characterisky?

Abstract: Purpose: The purpose of this thesis is to investigate how financial risk-taking within companies is related to the CEOs’ and CFOs’ personal characteristics. Theoretical framework: Using the Upper Echelons Theory (UET) (Hambrick & Mason, 1984) and a literature review of previous studies of the UET, hypotheses are built with the aim to investigate the relationship between the UET characteristics and financial risk. Methodology: The research is carried out with a quantitative method, with a deductive approach to theory. A panel data set consisting of 83 companies is observed over a five-year period. 830 CEOs and CFOs age, education, gender and career experiences are gathered, and financial data for the companies’ solidity, gearing, interest coverage and debt/EBITDA ratios as proxys for financial risk. To identify whether there is a relation between the Upper Echelon characteristics and financial risk, the data is tested through panel regressions with fixed effects. Results: The statistical analyses showed several statistically significant relationships between the UET characteristics and the financial risk measures. Statistically significant relationships are found for all the characteristics in all the regressions except one, and in six of eight regressions position specific work experience is statistically significant. Conclusions: Based on the regression analyses, the study found both significant and insignificant results. Therefore, the study cannot fully disregard that CEOs’ and CFO’s characteristics can influence the financial risk in a company. Thus, the study finds some evidence that the UET theory is effective in explaining financial risk taking.