Management | CEOs
You only get one chance at a first impression. In fact, entire financial markets are driven by the impressions a CEO gives an investor. For any given firm, these impressions, or perceptions, directly influence stock volatility and its ability to create value.
Most companies, and boards, don’t know what they don’t know. They have no real way to measure how the market is going to react to a CEO until that person steps into the role. Steve Boivie, Ph.D., is working to change that, though. Along with co-authors, Boivie is assessing the relationships among CEO personality traits, investor perceptions of risk, and stock returns.
Researchers have long wanted a way to assess various traits of the CEO, but have historically been unable to get CEOs to fill out long surveys. Consequently, it has been difficult to connect the vast literature in psychology and social psychology to CEOs.
With increasing access to data on CEO speech patterns, along with advancements in machine learning, Boivie and his co-authors have found a way to measure CEO personality and use it to explore how investors respond to different types of CEOs. The CEO personality is measured through machine learning that takes the text from conference calls and produces scores for the CEOs across the Big 5 personality dimensions: conscientiousness, neuroticism, extraversion, agreeableness, and openness to experience.
The CEO of a company is the face of the company and can have a substantial effect on how investors view it.
Whenever analysts and investors think about firms, they are inherently assessing how they feel about the CEO. They are trying to make predictions about how the CEO will act, and how that CEO’s disposition will affect their investment. By demonstrating that the CEO’s personality affects the way investors perceive risk, and the risk-return relationship, Boivie hopes to give boards and potential investors greater insights into some of these processes that have historically been less accessible.
Learn more about Boivie: tx.ag/MaysBoivie