CLEARED FOR TAKEOFF?

CEO PERSONAL RISK-TAKING AND CORPORATE POLICIES*

MATTHEW D. CAIN Mendoza College of Business University of Notre Dame Notre Dame, IN 46556 mcain2@nd.edu

STEPHEN B. MCKEON Lundquist College of Business University of Oregon Eugene, OR 97403 smckeon@uoregon.edu

This version: Aug 2011

We thank David Cesarini, Shane Corwin, Dave Denis, Paul Gao, Byoung-Hyoun Hwang, Matti Keloharju, Tobias Muhlhofer, Mark Reinecke, Scott Yonker, Marvin Zuckerman, seminar participants at Notre Dame, and participants at the 2010 State of Indiana conference for helpful comments. Part of the research was completed while McKeon was at Purdue University.

Electronic copy available at: http://ssrn.com/abstract=1785413

Cleared for Takeoff? CEO Personal Risk-Taking and Corporate Policies

Abstract

This study analyzes the relation between CEO personal risk-taking, corporate policies, and overall firm risk. Using Federal Aviation Administration data, we identify a subset of CEOs who possess small aircraft pilot licenses. The desire to fly is indicative of a genetic personality trait known as sensation seeking, which is associated with risk-taking behavior. Our evidence suggests that a genetic predisposition towards personal risk-taking extends to the executive suite and impacts corporate decision making. Risk-taking CEOs are associated with higher firm leverage, more frequent acquisitions, and greater stock return volatility. In contrast to overconfident CEOs, risk-taking CEOs who manage high book-to-market firms are associated with value increasing acquisitions. We find no significant differences in compensation structure that might incentivize risk-taking, suggesting that risk-taking CEOs imprint their biological characteristics on firms absent the influence of risk-inducing compensation schemes.

Electronic copy available at: http://ssrn.com/abstract=1785413

1.

Introduction An emerging strand of the finance literature examines the impact that genetic characteristics have

on individual investment behavior. Prior work has shown that genetic differences among individuals explain heterogeneity in savings behavior (Cronqvist and Siegel, 2011), stock market participation and asset allocation (Barnea, Cronqvist, and Siegel, 2010). Investor IQ also predicts stock market

participation and earned Sharpe ratios (Grinblatt, Keloharju, and Linnainmaa, 2011). A separate line of work examines the relation between managerial characteristics and economic outcomes. Prior studies have analyzed CEO characteristics such as age and education (Bertrand and Schoar, 2003), overconfidence (Malmendier and Tate, 2005, 2008) military experience and Depression era upbringing (Malmendier, Tate, and Yan, 2011), political affiliation (Hutton et al., 2010) and religion (Hilary and Hui, 2009). However, most of the managerial characteristics under consideration in the corporate finance literature thus far are not genetically heritable, making contributions from these studies to the fields of genetics, psychology, and decision sciences less clear. Further, some studies question whether

managerial style has a causal impact at all on corporate decisions (e.g., Fee, Hadlock, and Pierce, 2011). Nonetheless, the field of behavioral genetics, dating back to the early 1950s, has consistently documented the causal influence that genetics has on individual personalities and behaviors. Studies have documented the heritability and influence of numerous traits, such as neuroticism (Eysenck and Prell, 1951), extraversion (Eysenck and Prell, 1956), criminality (Eysenck, 1964), IQ (e.g., Jinks and Fulker, 1970; Bouchard, et al., 1990), empathy and altruism (Rushton, et al., 1986), among others. This research has found that genetic factors contribute over 50% of the variance in many personality traits, with the remaining portion influenced by environmental factors (e.g., Tellegen, et al., 1988; Eaves, et al., 1989). It is thus pertinent to explore the extent to which these types of traits affect individual behavior in a corporate finance setting. We examine a genetic personality trait known in the psychology literature as sensation seeking, which is associated with risky behavior. Sensation seeking is correlated with a propensity towards risk2
Electronic copy available at: http://ssrn.com/abstract=1785413

taking behavior in an extraordinarily wide range of different settings such as driving, sex, sports and vocation, among others (Zuckerman, 2007). We proxy for sensation seeking using a novel dataset of CEOs who hold small aircraft pilot licenses. Prior psychology studies have documented that the desire to fly an airplane represents one of the highest predictors of the thrill and adventure seeking component of sensation seeking personalities (Zuckerman, 1971). We show that operating small aircraft is a

particularly risky activity, especially the type of flying undertaken by CEOs who hold airman certificates. The empirical question we ask, therefore, is whether the influence of the sensation seeking trait extends to corporate decision making when managers possess this characteristic. In what follows, we use the terms sensation seeking and risk-taking interchangeably. We test whether firms managed by risk-taking CEOs exhibit policies and attributes that are behaviorally consistent with their personal preferences. We hypothesize that firms led by risk-taking CEOs will be associated with riskier corporate policies as compared to otherwise similar firms. Our primary tests analyze the effects of risk-taking CEOs for two aspects of corporate policy in which CEOs are particularly influential: merger and acquisition (M&A) activity and capital structure (Graham, Harvey, and Puri, 2011). We then supplement this with an analysis of overall firm risk (equity volatility). To our knowledge, this is the first study to explore the linkage between the genetic characteristics of CEOs and corporate financial policies. Using a sample of 15,627 firm-years between 1992 and 2009, we find that risk-taking CEOs are significantly more likely to engage in acquisition activity, and are associated with significantly higher firm leverage ratios. This evidence is the corporate corollary to Grinblatt and Keloharjus (2009) finding that sensation seeking retail investors trade more actively. Further, the positive relation between our risktaking proxy and firm leverage is a behaviorally consistent one, as higher leverage increases firm risk, ceteris paribus. Our findings for leverage complement those of Cronqvist, Makhija, and Yonker (2011), who report evidence of behavioral consistency between CEOs personal leverage choices and the leverage ratios of their firms.

Following the analysis of corporate policies, we turn to examining the effect of sensation seeking CEOs on overall firm risk. We find that firms led by risk-taking CEOs are associated with significantly higher levels of stock return volatility, even after controlling for leverage. Moreover, a substantial amount of the increase in return volatility is explained by the acquisition activity of the Pilot CEO-led firms. This implies that in addition to higher leverage, M&A activity is an important channel through which risk-taking CEOs increase the riskiness of their firms.1 While risk-taking CEOs are associated with greater firm risk, the implication for the value effects of their acquisitions is not clear cut. In the full sample, we find no significant relation between CEO pilots and M&A announcement returns. However, among high book-to-market (B/M) firms, commonly known as value firms, risk-taking CEOs are associated with significantly higher announcement returns. One possible explanation for this pattern is that among value firms with relatively few recognizable organic growth opportunities, risk-taking CEOs identify and pursue valuable new growth prospects through acquisition. This is consistent with prior psychology studies which document that sensation seekers exhibit higher levels of creativity and cognitive innovation. At least two plausible explanations exist for the relation between personal risk-taking and firm policy. The first explanation implies that CEOs imprint their biological and behavioral characteristics on their firms corporate policies. A second explanation is that firms optimally match with CEOs who possess preferences similar to those of the firm. Under the second explanation, boards should set compensation policy in a way that attracts CEOs who match with riskier corporate objectives (Graham et al., 2010; Coles et al., 2006). We thus attempt to differentiate between these two explanations by comparing the total compensation and compensation delta and vega exposures for pilot vs. non-pilot CEOs. We find no differences in any of these proxies between CEO types, which is inconsistent with the matching story and lends support for the imprinting explanation of the results. However, as we note in Section 4.4, this test rests on the assumption that boards do not recognize ex ante that a genetic
1

Amihud and Lev (1981) report that risk reduction is a motive for diversifying mergers and acquisitions. Our evidence is not consistent with diversification being a motive for the M&As undertaken by Pilot CEOs.

predisposition towards risk-taking can replace some degree of incentive compensation. If boards are aware of CEO personality traits but do not use compensation structure to induce self selection, then our tests will lack the power to differentiate between an imprinting vs. matching explanation. Our results are robust to a variety of alternative explanations beyond the matching/imprinting debate. Many of our specifications employ firm, industry and year fixed effects without any qualitative differences in our conclusions. In addition, we also control for a variety of other managerial

characteristics that can influence financial decision making such as Great Depression era upbringing, military experience, tenure and age. We demonstrate that CEO pilots primarily fly as a hobby, rather than as a business necessity, confirming that we are measuring personal risk-taking preferences rather than behavior driven by circumstance. We also note that if our risk-taking measure is spuriously correlated with ability or other unobservable factors of superior skill, we would expect these CEOs to have higher total compensation, yet we find no significant differences along these lines. Finally, we show that our measure of personal risk-taking is fundamentally different from overconfidence. Many of our empirical results differ from those reported in the overconfidence literature. For example, overconfident CEOs pursue value-destroying acquisitions (Malmendier and Tate, 2008), while we find the opposite result for risk-taking CEOs. Furthermore, Grinblatt and Keloharju (2009) measure both overconfidence and

sensation seeking for the individuals in their sample and find that the two attributes are nearly uncorrelated. Our findings are consistent with prior studies of managerial risk taking within the

management science literature such as MacCrimmon and Wehrung (1990) who conclude that the most successful executives are the biggest risk takers. Recent empirical evidence suggests that genetics and financial decision making are inter-related.2 Our evidence is consistent with the notion that genetic characteristics can influence a wide range of corporate activity such as capital structure, M&A activity and equity volatility. Ultimately, piloting is
2

For example, Sapienza, Zingales and Maestripieri (2009) link risk aversion to testosterone levels and genetic markers. Cesarini et al. (2010) and Barnea, Cronqvist and Siegel (2010) find that genetic characteristics explain a substantial portion of the cross sectional variation in individuals stock market participation and asset allocation. Grinblatt, et al. (2011) show that IQ is correlated with stock market participation and with investors Sharpe ratios.

only one of numerous outlets that individuals with a propensity towards risk-taking may pursue; our proxy thus has a certain degree of noise. To the extent that we find a significant relation between our proxy for risk-taking behavior and corporate policy despite this noise, we believe the results lend credence to the consideration of this trait in corporate finance. From a practitioner standpoint, a key element of personal risk-taking behavior is that it can often be observed ex ante by firms during the hiring process through driving records or other background information. Our evidence can be utilized in the boardroom to better understand the behavioral tendencies of alternative CEO candidates prior to selection. The next section summarizes related literature on the psychology of individual risk-taking (2.1) and behavioral proxies in finance (2.2). Section three explains the data collection process and section four presents our empirical results. Section five concludes the paper.

2. 2.1

Related Literature The Biology and Psychology of Sensation Seeking and Risky Behavior The field of behavioral genetics developed out of a debate among psychologists over whether

environmental factors or genetic factors were more influential in the development of individuals personality characteristics. The field has largely concluded that genetic factors contribute more than half of the variance in most personality traits, with the lesser portion influenced by environmental factors (e.g., Tellegen, et al., 1988; Eaves, et al., 1989). Numerous studies have documented the heritability and influence of various traits, such as neuroticism (Eysenck and Prell, 1951), extraversion (Eysenck and Prell, 1956), criminality (Eysenck, 1964), IQ (e.g., Jinks and Fulker, 1970; Bouchard, et al., 1990), empathy and altruism (Rushton, et al., 1986), among others. More recent work in behavioral genetics has identified a number of heritable traits related to individuals financial decision-making, such as loss aversion and risk attitudes (e.g., Cesarini, et al., 2010; Cesarini, et al., 2011; Beauchamp, et al., 2011). Sensation seeking is a trait defined by the seeking of varied, novel, complex, and intense sensations and experiences, and the willingness to take physical, social, legal and financial risks for the sake of such experiences (Zuckerman, 1994). Sensation seeking tendencies also decline as individuals 6

age (Blackburn, 1969; Brownfield, 1966; Kish and Busse, 1968). Zuckerman (1971), who is credited with developing the Sensation Seeking Scale widely used in the psychology literature, observes that the phrase I would like to learn to fly an airplane reports the fourth highest loading on the thrill and adventure seeking factor in his study of 113 such phrases. Appendix A, republished from his 1971 study, reports the loadings of various activities. The loading for the desire to pilot an aircraft is just slightly behind skydiving and well ahead of activities such as motorcycle riding or downhill skiing. A variety of academic disciplines such as behavior genetics, biological psychiatry, and neuropsychology examine the biological bases of sensation seeking. Studies within these fields find that the sensation seeking trait is 58% to 59% heritable, a figure that is at the upper end of the heritability range of personality traits and one that is close to the heritability of cognitive abilities.3 Personality traits are inherited as biological structures encoded in DNA and the heritability of sensation seeking has been linked to a particular biological marker, specifically the enzyme monoamine oxidase (MAO). Zuckerman (1994) surveys several studies that jointly examine MAO levels and sensation seeking and reports that a significant negative relation is observed between the two. Taken together, the results from studies of the biological correlates of sensation seeking strongly suggest that it is a heritable, genetic trait. Heritable genetic traits are a class of managerial characteristics that has not received much attention in the corporate finance literature. Sensation seeking is defined by risky behavior, so we turn now to the empirical evidence that piloting small aircraft is consistent with this definition and with the survey evidence collected by Zuckerman (1971). The first piece of evidence is provided by the life insurance industry, which is in the business of assessing mortality risk. This industry recognizes piloting small aircraft as evidence of risky behavior. A Society of Actuaries study (McFall, 1992) examines the effects on mortality from piloting small aircraft, focusing narrowly on civilian aviators not flying for pay, the precise category into which most CEO pilots fall. He reports that the mortality rate of this group is increased over 100% for a 40-year
3

See Fulker et al. (1980) for analysis on genetic heritability of the sensation seeking trait and Tellegen et al. (1988) for analysis on heritability of personality traits in general.

old male that qualified for standard (average life expectancy) policies. Mortality rates increased over 200% for individuals that were otherwise qualified for substandard (high risk) policies. The report specifically singled out business executives as pilots who were especially high risk. Sadly, the popular press contains many examples of CEOs who have lost their lives piloting small aircraft.4 To further highlight the riskiness of flying small aircraft, we compare fatality rates for general aviation pilots to fatality rates associated with a variety of other activities. Many readers are likely familiar with the old adage driving is riskier than flying, so it is important to differentiate alternative forms of flying. We obtain fatality data primarily from the National Transportation Safety Board for alternative forms of flying and the National Highway Traffic Safety Administration for operating motorcycles and passenger cars; a detailed list of sources is listed below Figure 1. One challenge in comparing the data is that flying data are reported on a per hour basis while driving data are reported per mile; thus, an assumption about the average speed of automobile traffic is required to convert the data to fatalities per hour. We assume an average speed of 55 miles per hour which we consider to be a conservatively high figure. Lower speed assumptions would result in driving fatality rates that are lower than those reported. Figure 1 plots fatality rates over the past decade for (i) personal/business flying, (ii) motorcycles, (iii) hot air balloons, (iv) personal helicopters, (v) crop dusters, (vi) commercial helicopters, (vii) corporate/executive flying, (viii) passenger cars, and (ix) commercial airlines. Most CEO pilots fall into category (i). The term business flying in category (i) is defined as flights made in furtherance of the pilots own livelihood or in support of business endeavors,5 whereas executives riding on a plane with a professional crew fall into category (vii). The data indicates that the latter form of travel is not much different than driving passenger cars in terms of the risk of mortality, and flying commercial airlines is
4

Some examples include: Daniel Dorsch, former CEO of Checkers Drive-In Restaurants, Inc., 2009; Douglas J. Sharratt, CEO of ProSoft Technologies, 2008; Jeanette Symons, CEO of Industrious Kid, Inc., 2008; Bruce R. Kennedy, former CEO of Alaska Airlines, 2007; Michael F. Wille, CEO of The Title Company, Inc., 2006; David R. Burke, Sr., CEO of CeleXx Corp., 2001; Michael A. Chowdry, CEO of Atlas Air, Inc., 2001; J. Wesley Rogers, CEO of Oceaneering International, Inc., 1986. 2006 Nall Report: Accident Trends and Factors for 2005, published by the AOPA Air Safety Foundation.

even safer. Operating small aircraft is substantially more dangerous than driving passenger cars. At 21.5 fatalities per million hours, personal/business flying is over 30 times more dangerous than driving and ranks as the most dangerous activity among the nine forms analyzed, well ahead of even crop-dusting. Taken together, the life insurance and fatality analyses suggest that operating small aircraft is indeed a very risky activity. These results offer empirical support for our claim that hobby pilots are engaging in risk-taking behavior. Throughout the remainder of our study, we use the terms sensation seeking and risk-taking interchangeably.

2.2

Personal Psychology and Finance Bertrand and Schoar (2003) document systematic behavioral differences in corporate decision

making across managers and find that these differences impact financing and investment policies in firms that are otherwise operating in similar environments. They obtain data on two specific characteristics, birth year and whether the CEO completed an MBA degree, and report significant relations between each characteristic and particular firm policies. Specifically, they find that older managers are associated with more conservative levels of firm leverage while CEOs with MBAs pursue more aggressive strategies that include higher leverage, lower dividends and more capital expenditures. They do not find any significant relation between these characteristics and M&A activity, but note that the characteristics in their study are just two of a myriad set of possible characteristics that may influence managerial decision making. They lament the fact that due to data constraints they are unable to observe differences in characteristics such as personal psychology, among others. Malmendier and Tate (2005) contribute to this gap in the literature by constructing variables that proxy for variation in personal psychology related to overconfidence. CEOs who persistently expose themselves to excessive levels of idiosyncratic firm risk, rather than exercising vested options and diversifying their personal wealth, are labeled as overconfident. They document that overconfident CEOs investment decisions are more sensitive to cash flow realizations, particularly in the most constrained firms. Ben-David, Graham, and Harvey (2010) study miscalibration, a form of 9

overconfidence, and find increased investment levels in firms that employ miscalibrated managers. Several studies have linked overconfidence to merger and acquisition activity, beginning with Rolls (1986) hubris hypothesis of corporate takeovers, which rests on the bidders presumption that its valuation is correct. Using the same overconfidence measure employed in their 2005 study, Malmendier and Tate (2008) link overconfident CEOs to increased M&A activity, and show that this activity is, on average, value-destroying. Using data from Finland, Grinblatt and Keloharju (2009) construct separate overconfidence and sensation seeking measures for individual investors and study the effects on trading activity.6 The authors lack data for Zuckermans sensation seeking measure, but are able to estimate this behavioral attribute using investors driving records in Finland. They observe (p.533): The correlation between our sensation seeking and overconfidence measures is very low, so both behavioral attributes have relatively independent influence on trading. Sensation seeking is less related to the decision of whether to trade at all and more related to the decision of how much to trade. As noted by Grinblatt and Keloharju (2009), sensation seeking is distinct from overconfidence and thus represents a departure from the CEO characteristics and biases previously studied in the behavioral corporate finance literature.7 Further, we note two important features of our proxy that make it particularly well suited for an examination of the relation between personal psychology and firm policies. First, it is advantageous in the sense that it is not derived from compensation or firm-specific variables and therefore sidesteps the endogeneity concerns inherent in studies that use these types of variables to explain firm policies. Second, unlike overconfidence, sensation seeking is observable ex ante by behavior occurring outside the domain of the firm. In contrast, existing measures require a long tenure within the
6

An interesting anecdote relating Grinblatt and Keloharjus (2009) findings to our study can be found in the origins of online stock trading. TD Ameritrade became the largest online discount brokerage in the world by catering specifically to frequent retail traders. Perhaps not coincidentally, J. Joseph Ricketts, the founder of Ameritrade, is a pilot. Other studies and models of CEO characteristics include Kaplan, Klebanov and Sorenson (2010), Hackbarth (2008), Adams et al. (2005), and Bennedsen et al. (2008).

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firm in order to identify a CEO as overconfident, suggesting that directors would be unable to identify this trait prior to (or even shortly after) the hiring decision.8 Empirical examinations of CEO personal behavior as it relates to firm policies are limited by data availability. Researchers must identify aspects of an individuals private life that are part of the public record. One novel approach along these lines is a recent study by Cronqvist, Makhija, and Yonker (2011), who collect data on CEOs home mortgages. They find that CEOs who use higher leverage personally are associated with higher leverage at their firms. Our work is also related to studies that empirically examine differences in investment activity related to genetic heterogeneity. Cronqvist and Siegel (2011) report that 33% of the variation in savings behavior exhibited by individuals can be explained by genetic differences and Barnea, Cronqvist, and Siegel (2010) find that genetic factors explain about a third of the cross sectional variation in individuals stock market participation and asset allocation. Grinblatt, Keloharju, and Linnainmaa (2011) show how stock market participation is positively related to individuals IQ, and they also document that high-IQ investors earn higher Sharpe ratios. Cesarini et al. (2010) conduct a thorough analysis of genetic

influences on financial decision making and conclude that biological sources of variation in financial risktaking are important but not yet well understood. We contribute to the existing literature by measuring a genetic personality trait for a large sample of CEOs using a theoretically-motivated proxy variable. We then relate this personality trait to various corporate policies by focusing on CEOs as the primary decision-makers in their firms. This represents a novel approach to evaluating the impact of genetics on corporate finance decision-making. Moreover, our sensation seeking proxy is based not on firm-specific variables, which could produce spurious correlations, but rather on CEO behavior occurring outside the scope of firm employment. Our proxy thus offers applicability in practice at both the hiring and post-hiring evaluation stages of CEO selection.

Malmendier and Tate (2005), p. 2680.

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3.

Data We draw the initial sample of CEOs from the Compustat Executive Compensation (ExecuComp)

database, which primarily covers firms in the S&P 1500 index. Because ExecuComp coverage begins around 1992, we include CEOs in the sample only if the ExecuComp Became CEO date is on or after January 1, 1991. This mitigates any survival bias that could affect CEOs included in the dataset. This first-pass produces 4,012 CEO-firm combinations. We then search for CEO names on the Federal Aviation Administrations (FAA) Airmen Certification database.9 If a given name does not produce a match in the FAAs database, then this observation is coded as a non-pilot and no further validation is necessary. If a given name produces at least one name-match in the FAAs database, we take further steps to confirm whether the pilot certificate belongs to the sample CEO. We use LexisNexis, Bloomberg, and public records searches to obtain birth dates, home addresses, and other personal information on the CEOs which can be used to validate the FAA certificate information. Doing so eliminates false-positive name matching and re-assigns those observations into the non-pilot group. We are able to locate

sufficient personal information to confidently accept or reject the FAA name matches on over 77% of the initial sample. The manual data-checking results in a final sample of 179 CEO pilots and 2,931 CEO

non-pilots. Eleven of the pilot CEOs worked for more than one company and 12 firms employ more than one pilot as CEO during the sample period. In total, the full panel covers 1,016 CEO pilot-firm years and 14,611 CEO non-pilot-firm years. Table 1, Panel A reports descriptive statistics on the airmen certificates linked to the sample CEOs. The vast majority fall under the Private Pilot designation which is the level of certification required to solo pilot an aircraft under 12,500 lbs. Another 16% further reach the Commercial Pilot certification, which requires more rigorous examination and training and allows the holder to accept
9

Available at https://amsrvs.registry.faa.gov/airmeninquiry/. The FAA website also provides a downloadable database of active airmen certificate information. We search the online registry in order to locate both current and expired certificates. This database is separate from the FAAs civil aircraft registry utilized by Yermack (2006).

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compensation from passengers. It is important to note that this level of certification does not imply that the holder flies as a profession; a private pilot may seek a commercial license after having accumulated enough flight hours simply because a commercial license can reduce insurance costs, as it is evidence of experience. The highest level of certification, Airline Transport Pilot (ATP), is held by 13 CEOs, comprising 7.3% of the pilot sample. A pilot with a commercial license is qualified for an ATP license after attaining 1,500 flight hours and multi-engine ratings. Fourteen CEO pilots are classified as student pilots. A student license is required to exercise solo flights during the training period prior to earning a private license. The CEO pilots hold a variety of ratings which provide additional flight privileges. For example, about half the pilots hold an instrument rating, allowing them to fly under conditions in which view is obstructed. Further, the pilots in our sample hold a diverse range of class ratings which allow them to operate multi-engine airplanes (55 CEOs), helicopters (10), gliders (4), experimental aircraft (3), hot air balloons (3) and planes that land on water (10).10 Panel A also reports descriptive statistics for sample CEO characteristics that have been explored in prior studies: Depression era upbringing, military experience, age, and tenure at the firm. Firm-level descriptive statistics are reported for variables that enter later models. All variables are defined in Appendix B. Panel B of Table 1 reports pair-wise correlation coefficients for these variables, with * denoting statistical significance at the 5% level or better. Table 2 provides statistics on the distribution of firms by industry and urban/rural classification. One concern in using pilot license data as a proxy for sensation seeking is that if sample firms are disproportionally located in rural locales, the choice to obtain a pilots license may be driven by a lack of alternative options for air travel. To address this possibility, we collect geographical data on firm
10

The most distinguished pilot in the sample is John W. Wood, Jr., CEO of Analogic Corp., who holds every single rating listed above except experimental aircraft, and who is also a certified flight instructor. Given the substantial amount of time that must be dedicated to achieving these ratings and the demands of a typical S&P 1500 CEO, we were concerned whether the pilot was in fact the same person as the corporate executive. Our selection methodology was confirmed when we found an interview with Mr. Wood published recently in a corporate newsletter. It runs alongside a picture of him flying an open cockpit WWII replica plane.

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headquarters and the corresponding Metropolitan Statistical Area (MSA) as defined by the U.S. Census Bureau.11 Panel A reports the most common MSAs for pilot CEO firms. The 20 most common MSAs, all of which have international airports, account for nearly 70% of all observations. Further, 150 of the 170 firms fall within an MSA ranked in the top 100 by population, which corresponds to at least half a million people. Of the 20 that do not, 10 are ranked between 100 and 150 and two are foreign, leaving only eight firms that could be considered rural. In unreported results, we test whether the proportion of CEO pilots that live near commercial airports differs from the general population of CEOs; we find it does not. Moreover, since half of the sample pilots do not hold an instrument rating, they would not be permitted to fly significant distances that would be required for typical business travel. 12 Thus, the sample CEO pilots generally appear to pursue flying as a hobby and not as a business necessity. Panel B reports descriptive statistics on CEO pilot firm industries by two-digit SIC code. The CEO pilots lead firms in a diverse range of industries. The two most prevalent SIC codes are Business services (10.6%), and Electronic equipment (7.6%) followed by industries including machinery, utilities and food products. It does not appear that CEO pilot firms are disproportionately located in aviationrelated industries or that any single industry dominates the sample. Nonetheless, to control for the possibility that industry characteristics affect the results in later sections, we employ industry fixed effects in some models.

4. 4.1

Empirical Results Risk-taking CEOs and capital structure Cronqvist, Makhija, and Yonker (2011) study CEOs personal leverage choices and find that the

capital structure decisions of their firms are behaviorally consistent; that is, CEOs who use higher leverage personally are associated with higher firm leverage. Behavioral consistency theory posits that an

11 12

MSA data is available at http://www.census.gov/population/www/estimates/metrodef.html. We thank Tobias Muhlhofer for bringing this to our attention.

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individuals behavior is largely stable across situations. 13 If CEOs are behaviorally consistent, the observation of risk-taking in one facet of their lives, piloting small aircraft, should transfer to risk-taking in their professional lives. One form of corporate risk-taking is the willingness to engage in leverageincreasing transactions. We test whether the group of risk-taking CEOs exhibits meaningful differences in capital structure, after controlling for differences in the operating environment. Table 3 reports the results from these tests. We measure book leverage as total debt over total assets. We then regress our measure of leverage on our risk-taking proxy, controls for various other CEO characteristics, and firmspecific variables shown by prior literature to be significant determinants of leverage. 14 Further, to control for unobserved firm and/or time-specific factors that affect debt policy, we control for firm fixed effects in model 1 and both firm and year fixed effects in model 2. In both specifications, the pilot dummy variable, our proxy for risk-taking behavior, is positively associated with leverage ratios, with statistical significance at the 5% level. In other words, the results support the notion of behavioral consistency. To the extent that the risk-taking behavior we measure is driven by the sensation seeking trait, our evidence is consistent with a link between genetic characteristics and capital structure.

4.2

CEO pilots and acquisition activity Graham, Harvey, and Puri (2011) document that CEOs are more likely to retain the decision-

making authority for mergers and acquisitions relative to other corporate policies. Further, Graham, Harvey & Puris (2010) evidence from survey data suggests that CEO characteristics, particularly as they pertain to risk preferences, matter in acquisition activity. We hypothesize that if risk-taking tendencies are present in CEOs, a corporate corollary to the increased trading frequency observed in sensation seeking retail investors will manifest in higher acquisition frequency. Table 4 reports estimates from logit models in which the dependent variable equals one if a firm announces a successful bid in a given year
13 14

Early studies of behavioral consistency include Allport (1937), Epstein (1979) and Funder and Colvin (1991). Malmendier, Tate and Yan (2011) report that military experience, depression era upbringing, and age are significant determinants of leverage. Firm-specific variables are based on Rajan and Zingales (1995).

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and zero otherwise.15 M&A transaction data comes from the Thomson Reuters SDC Platinum database. We include a number of control variables which have been shown to impact the likelihood of engagement in M&A activity (Bauguess and Stegemoller, 2008; Harford, Humphry, and Powell, 2010; Malmendier and Tate, 2008): leverage, dividend yield, an indicator for net loss firm years (Loss Dummy), the natural log of total assets, free cash flow, Tobins Q, and capital expenditures (CapEx). The construction of these variables is explained in Appendix B. Coefficients are reported as odds ratios; thus, a coefficient greater than one is positive and less than one is negative. In Column (1) of Table 4, the coefficient on the Pilot variable is greater than one and statistically significant at the 5% level, indicating that CEO pilots are more likely to complete acquisitions. Older CEOs appear to engage in fewer acquisitions as well, as the coefficient on the Age variable is less than one. CEOs are more likely to make acquisitions later during their tenure with the firm, with the coefficient on Tenure greater than one and significant at the 1% level.16 The coefficients on the other CEO characteristics are not statistically different from zero. In Columns (2) through (4), we control for industry fixed effects and year fixed effects, with Column (4) reporting results from a model that includes both controls.17 The coefficient on the Pilot variable remains positive and significant at the 5% level, but Age is not significant in Columns (3) and (4). It is possible that the inclusion of both year and industry fixed effects reduces the power of the test on the Age variable in Column (4). In Column (5) we include these controls but drop the Pilot, Depression, and Military variables from the model, which increases the sample size. In the larger sample results reported in Column (5), the Age variable remains negative and is now statistically significant at the 10% (two-sided) level. Thus age, which has been shown to attenuate sensation seeking tendencies, leads older CEOs to pursue fewer acquisitions, while sensation seekers, as
15

We follow Malmendier and Tate (2008) in counting only bids that are eventually successful. Our results are qualitatively similar if we include both successful and unsuccessful bids. Identification for both the age and tenure variables requires that some CEOs switch firms during the sample period, which resets Tenure but not Age. As we document later, our sample of CEO turnover events is limited. This makes it problematic to include firm fixed effects in these and later regressions, as the sample lacks sufficient variation to identify the Pilot CEO coefficient when including firm fixed effects. Malmendier and Tate (2005, p. 2680) further discuss the preferred use of industry fixed effects in this type of setting.

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17

16

measured by the Pilot variable, are more likely to exhibit their change-seeking attribute at a corporate level through an increased tendency to engage in M&A activity. M&A activity is only one of the avenues through which executives pursue corporate growth; internal investment is an alternative path. It is possible that sensation seekers substitute external for internal growth prospects; alternatively, it is possible that capital expenditures and acquisitions are compliments for one another as sensation seekers pursue overall corporate growth. In unreported tables, we evaluate the capital expenditures to assets ratios associated with CEOs of varying characteristics.18 We find that capital expenditures are positively associated with Pilot CEOs and negatively associated with CEOs who grew up during the Great Depression or who have prior military experience. Overall, the results imply that capital expenditures and M&A activity are compliments for one another as sensation seekers pursue both organic and inorganic growth opportunities at an increased rate relative to their peers. The predicted effect of the sensation seeking trait on overall firm value is not obvious. On the one hand, if sensation seeking behavior induces CEOs to make overly aggressive decisions and pursue targets that are not within the firms core competencies, then this characteristic could reduce the value of the firm. This would be related to the value-reducing acquisitions made by overconfident managers as documented by Malmendier and Tate (2008). Rau and Vermaelen (1998) show that managerial

hubris/overconfidence may be amplified among glamour firms, i.e., firms with market values that have risen sharply in recent months. CEOs in these firms may incorrectly attribute the high market values to their own capabilities and subsequently overbid on acquisition opportunities. The authors dub this performance extrapolation and document that low book-to-market glamour firms experience negative abnormal performance following acquisitions. If sensation seeking CEOs pursue similarly value-reducing acquisition targets, we would expect these to produce returns lower than deals closed by non-sensation seeking CEOs. This effect could be more pronounced among glamour firms.
18

These models are ols regressions with independent variables including CEO characteristics, beginning-of year: leverage, dividend yield, loss dummy, natural log of total assets, free cash flow, Tobins Q, and year/industry fixed effects. The dependent variable is the firms capital expenditures scaled by beginning-of-year total assets.

17

On the other hand, the finance literature is frequently concerned with the task of adequately incentivizing risk-averse agents to undertake value-increasing, but risky, projects for the firm. Thus, to the extent that sensation seekers are more willing to take on risky projects and acquisitions, then it is possible that they create shareholder value in doing so. If the effects of sensation seeking are unrelated to those brought about by overconfidence, then acquisition returns among high book-to-market value firms may be greater (Rau and Vermaelen, 1998). To the extent that sensation seekers identify and pursue valuable growth opportunities in firms with few recognizable prospects, i.e., value firms, their acquisition activities may be more beneficial among high book-to-market firms. To test the value creation of sensation seekers investment activities, we evaluate the announcement period returns of sample bidders relative to CEO characteristics and other controls. Table 5 reports OLS regressions using bidder announcement returns as the dependent variable. As in

Malmendier and Tate (2008), cumulative abnormal returns are formed over the (-1, +1) window around merger announcements, using the S&P 500 Index as the benchmark expected return. 19 We include transaction characteristics as control variables: an indicator for cash payment, the natural log of transaction value, an indicator for private targets, and an indicator for transactions with different bidder and target three-digit SIC codes (Diversifying). We also include bidder characteristics from prior tables, but lagged by one year since announcement returns occur prior to year-end. All independent variables are defined in greater detail in Appendix B. In Column (1) of Table 5, bidder returns are unrelated to all of the CEO characteristics. Thus, on average, CEO characteristics do not appear to significantly impact the quality of their acquisitions in our sample. Column (2) includes both year and industry fixed effects, and results are similarly insignificant. We next turn to evaluating whether returns differ between glamour and value acquirers. We proxy for this using the ratio of book equity to market value of equity (B/M) in the year prior to acquisition announcement, with high B/M firms being value firms and low B/M firms being glamour firms. We
19

Our results are not sensitive to this choice of benchmark; qualitatively similar results are obtained using the CRSP equalweighted and value-weighted indices as the benchmark for expected returns.

18

assign firms to either low B/M or high B/M bins based on the Fama-French B/M breakpoints for NYSE firms each year. 20 Column (3) reports results from the bidder return regression in the low B/M subsample, and shows a positive and significant effect of CEOs who grew up during the Great Depression. Column (4) includes both year and industry fixed effects, and the coefficient on Depression remains positive and significant, while the Pilot variable is insignificant in both columns. One

interpretation of these results is that CEOs who grew up during the Great Depression are more conservative in their acquisition decisions, and this conservatism is beneficial in low book-to-market glamour firms. Because the models do not document a negative effect among Pilot CEOs in glamour firms, the results do not provide any evidence to indicate that sensation seekers suffer from the type of overconfidence or hubris documented in prior M&A studies (e.g., Roll, 1986; Rau and Vermaelen, 1998; Malmendier and Tate, 2008). In Column (5), we compute a similar model of bidder returns in the high B/M value subsample of bidders. The Depression variable is no longer significant, but the coefficient on Pilot is positive and significant at the 5% level. Results are similar in Column (6), which includes both year and industry fixed effects. Thus, risk-seeking CEOs tend to pursue transactions that improve value firms growth prospects, as measured by acquisition announcement returns. We conclude that in at least certain firm types, sensation seekers can create value by pursuing a policy of heightened merger and acquisition activity. The results are consistent with the hypothesis that sensation seekers pursue value-increasing acquisitions at bidders with few recognizable organic growth prospects. In unreported tests, we examine whether characteristics of the acquirers or targets differ systematically between firms led by Pilot CEOs and those led by Non-Pilot CEOs. We find no difference in M&A rates between Pilot CEO glamour firm years and Pilot CEO value firm years. We further do not find any significant differences in the rates of target public status, transaction consideration method
20

We assign firms to the bins using the 25th percentile breakpoint each year, as this produces a balanced sample of approximately 50% of firm year announcements in each bin. Thus, our sample of acquirers is not representative of the overall sample of NYSE firms based on B/M rankings.

19

(cash/stock), cross-industry diversity, international status of targets, or offer premium amounts. However, Pilot CEOs tend to complete acquisitions of targets that are smaller in size relative to the bidder as compared to Non-Pilot CEO acquisitions. This difference is significant at the 5% level. Since the most value-destroying acquisitions are those that are largest in absolute and relative size (Moeller, et al., 2004), this result is consistent with our finding that Pilot CEOs execute mergers which are at least as beneficial as those completed by Non-Pilot CEOs, on average.

4.3

CEO pilots and firm risk Corporate risk-taking can take a variety of forms such as investment in high risk projects, or

engaging in leverage-increasing transactions. Financial economists have documented that firm risk-taking is related to various aspects of the firms operating environment. For example, risk-taking increases in the presence of better investor protection (Acharya, Amihud and Litov, 2010), diversified blockholders (Faccio et al., 2011), and decreases following legislation which increases takeover protection (Low, 2009) and the Sarbanes-Oxley legislation (Bargeron, Lehn and Zutter, 2010). A separate line of literature evaluates the relation between individuals and firm risk. For example, Anderson and Galinsky (2006) find that increased power leads to increased risk tolerance. Since tenure can be a source of CEO power (Shivdasani and Yermack, 1999), we control for tenure in the following regressions. In Table 6 we explore the link between CEO personal risk-taking and firm risk. The table reports results from OLS regressions in which the dependent variable equals the annualized standard deviation of firm-level monthly stock returns (Becker and Strmberg (2010).21 Firms with high return volatility are riskier than firms with low return volatility, although these models do not allow us to identify all of the corporate policies that drive this risk. The models include several firm-level control variables which have been shown to affect return volatility (e.g., Faccio et al., 2011): leverage, sales growth, return on equity
21

In unreported results, we also repeat the tests with daily returns, which produce qualitatively similar results. Other possible measures of firm volatility include the variance of accounting performance measures (e.g., earnings, ROA, ROE). These measures require a long time-series of annual data to estimate volatility and so we favor the use of return volatility over accounting performance volatility measures.

20

(ROE), firm size measured as the natural log of total assets, and the natural log of firm age. The construction of these variables is detailed in Appendix B. The independent variables also include CEO characteristics of interest: Pilot, Depression, Military, Age, and Tenure. We control for the impact of legislation by including year fixed effects in some models. In Columns (1) and (2), the coefficient on the Pilot variable is positive and significant, indicating that CEO pilots are associated with a greater degree of stock return volatility within their firms. The Age coefficient is negative and significant, indicating that firm risk tends to decrease as CEOs grow older. An age differential of 15 years would produce an effect that is similar in magnitude to but offsetting the effect of the Pilot variable (-0.002 * 15yrs vs. 0.03). Both of these results are consistent with theoretical predictions from the sensation seeking psychology literature. The Depression variable is not significantly related to firm volatility, and the coefficient on the Military variable is significant but negative. In Column (3), we further control for industry and year fixed effects. One might be concerned that Pilot CEOs tend to self-select into more volatile industries. However, the coefficient on the Pilot variable remains significant at the 1% level. Thus, the results do not appear to be driven by certain time periods or differences across industries. Although we cannot conclusively rule out other explanations, our results are consistent with the interpretation that CEOs who pursue risk-taking in their personal lives also pursue riskier corporate policies. Our tests in sections 4.1 and 4.2 indicate that risk-taking CEOs are associated with significantly higher leverage and acquisition activity. Higher leverage will increase firm risk, ceteris paribus, and we therefore control for leverage in our tests of firm risk. The effect of M&A transactions on firm risk, however, is ambiguous. If acquisitions are diversifying, firm risk could decrease (Amihud and Lev, 1981). Alternatively, a low beta firm acquiring a high beta firm could increase the volatility of returns to equity. We next turn to exploring the extent to which M&A activity drives changes in corporate risk as measured by return volatility. To do so, we include a binary variable, M&A Activity, which equals one if the firm completes an acquisition in the given year, and zero otherwise. We also interact this indicator variable with the Pilot CEO variable. Columns (4) through (6) report results from these models. The 21

coefficient on CEO Pilot is lower in both magnitude and statistical significance in these columns, while the coefficient on M&A Activity is insignificant in Columns (4) and (5) and significantly negative in Column (6). The coefficient on the interaction of Pilot and M&A Activity is positive and significant in all three columns. Thus, it appears that while M&A activity on average does not increase firm risk, the types of transactions executed by risk-seeking CEOs do tend to increase the riskiness of their firms. To summarize the findings, a substantial amount of the increase in firm risk associated with Pilot CEOs arises from their increased propensity for making acquisitions which are risk-increasing for the acquiring firm. Nonetheless, the Pilot variable remains statistically significant in Columns (4) and (6), indicating that these CEOs pursue additional corporate policies which positively impact their firms return volatility.

4.4

Matching or imprinting? Although our tests have demonstrated an association between risk-taking CEOs and risky

corporate policies, they have not proven causality. One explanation for the association is that risk-taking CEOs imprint their personal preferences on the firm, but another possibility is that these CEOs are hired by boards who wish to institute dramatic shifts in corporate financial policy. To the extent this occurs, it is plausible that the boards of these firms advocate for increases in firm risk, leverage and/or M&A activity. Thus, the CEOs who institute these changes do so not out of their own behavioral tendencies, but rather in response to board desires. This type of optimal matching story implies that CEOs with certain traits naturally select into firms that can best utilize those traits. Graham et al. (2010) suggest that firms set compensation policies in a manner that attracts candidates whose risk preferences match the firms objectives. Under this hypothesis, if boards wish to pursue high risk policies, then we would expect the compensation structure for these CEOs to reflect this desire in the form of higher incentives related to volatility (vega). Coles, Daniel and Naveen (2006) and Chava and Purnanandam (2010) use variation in the vega of CEO holdings as a proxy for risk-taking incentives and find a significantly positive relation between the exposure of a CEOs wealth to stock volatility and the pursuit of risky corporate policies. 22

We test the matching hypothesis using several facets of CEO compensation: natural log of total compensation based on grant date option values (model 1), as well as Black-Scholes Delta and Vega following Guay (1999), where delta is the change in the dollar value of the executives wealth for a one percentage point change in stock price and vega is the change in the dollar value of the executives wealth for a 0.01 change in the annualized standard deviation of stock returns.22 Table 7 reports results from OLS regressions of compensation measures on our risk-taking proxy, controls for other CEO characteristics, and controls for firm specific attributes that determine compensation structure. We further control for year and industry fixed effects. The CEO Pilot variable is not significantly related to delta or vega, suggesting that firms do not attempt to match policy to our proxy for risk-taking through the use of compensation structure. Furthermore, the risk-taking proxy is not significantly related to total compensation; indicating that the results in earlier sections are not driven by unobservable CEO ability or a similar omitted factor. Though these results point towards an explanation whereby risk-taking CEOs imprint their characteristics on the firm, it is not possible to conclusively rule out a matching explanation. Graham et al. (2010, p.3) state: Insofar as firms typically undertake costly incentive schemes to make managers take on risk, this kind of matching suggests that businesses can reduce the cost of incentive based compensation by hiring CEOs who are willing to take on more risk. Thus, if a board desiring risky policies is aware of a CEO candidates propensity towards risk-taking prior to contracting, it is possible that they optimally match with the candidate because increased volatility incentives are not required. In other words, the board may recognize that a genetic predisposition towards risk-taking can replace some degree of compensation convexity. We note, however, that to the extent boards knowingly select these types of CEOs to institute desired changes, this only serves to highlight the importance of CEO traits during the candidate selection process.
22

For robustness, in addition to total compensation, delta and vega, we also test for differences in alternative compensation measures such as incentive compensation (Tumarkin, 2010), total cash compensation and the proportion of cash to equity compensation. All of our results remain qualitatively unchanged under these alternative variable constructions.

23

4.5

Robustness We interpret our primary findings to indicate that sensation seeking CEOs are associated with

greater firm risk, and that these CEOs tend to increase the volatility of their firms equity by pursuing corporate growth through increased M&A activity. The results do not appear to be driven by a rural vs. urban firm location effect, or by an industry effect. One might be concerned that the results are influenced by some industries more than others. The most plausible industry of concern would be the one containing airline-related firms, since these firms may tend to attract CEOs with flying experience. While it is unlikely that this effect would produce a positive relation between our Pilot variable and firm risk or M&A activity, it is possible. To address this concern, we purge all airline-related firms from the sample (SIC codes 4512 and 3721) and re-calculate all models. The results remain qualitatively similar; thus, our main findings do not appear to be driven by an airline industry effect. General industry dynamics or industry merger waves should be adequately controlled for through the inclusion of industry or firm fixed effects in the models. Another potential concern with our results is that they merely reflect CEO overconfidence as measured in prior studies. This is unlikely for several reasons. First, Grinblatt and Keloharju (2009) document that overconfidence and sensation seeking are nearly uncorrelated. We lack systematic data on the overconfidence levels of sample CEOs, but to the extent that these two variables are uncorrelated, our primary results should remain unaffected. Second, as discussed previously, prior finance studies have generally found that overconfident CEOs pursue value-decreasing strategies. However, we document that if anything, sensation-seeking CEOs tend to pursue value-neutral to value-increasing growth opportunities. This finding is inconsistent with an overconfidence trait driving the results. In untabulated

24

tests, we evaluate the equity returns generated by pilot-CEO firms.23 On average, the pilot-CEO firms generate slightly positive, but insignificant, abnormal returns. Recent empirical work by Fee, Hadlock, and Pierce (2011) questions whether managers actually influence firm policies on average. They show that corporate policy changes are observed around endogenous CEO turnover events such as those forced by board intervention. However, exogenous turnover events driven by CEO deaths, health problems, or stepping down at customary retirement ages do not result in significant corporate policy changes. They interpret the findings to indicate that boards may push for policy changes commensurate with endogenous CEO changes. This would be inconsistent with an imprinting story whereby CEOs bring about policy changes independent of the desires of the board of directors. Unfortunately, our sample of firm-CEO turnover events involving a switch from pilot to non-pilot status or vice versa is limited. We therefore are unable to segment the CEO changes into exogenous turnover events for further analysis. Bertrand and Schoar (2003) and Fee, Hadlock, and Pierce (2011) also evaluate a subset of their data involving CEOs who serve at multiple firms in order to track CEO effects across places of employment. We lack a sufficient sample of Pilot CEOs who serve at multiple firms in our sample and so we are unable to perform this more powerful test of CEO effects. Our data do allow us to estimate CEO-firm residuals, similar to Bertrand and Schoar (2003), to measure the impact of directional changes in CEO type on firms policies. Table 8 reports the results from this analysis. Specifically, we first re-estimate models from prior tables but excluding the Pilot independent variable.24 Residuals from these regressions represent the impact that a given CEO type has on a firms corporate policy decision after controlling for other firm-specific factors. Next, the firm-year residuals from each regression are averaged for each CEO, excluding the first year of a CEOs tenure at a firm. Exclusion of the first tenure year reduces noise in corporate policy effects that may carry over from
23

Abnormal returns are calculated using the Fama-French three factor model. When the pilot dummy variable is included as an independent variable, it loads positively with a p-value of 0.19. When the three factor model is run exclusively on monthly excess returns to pilot firms, it results in alpha of 0.185 with a p-value of 0.15. The leverage regression is from Column (2) of Table 3, the M&A regression is from Column (4) of Table 4, and the firm risk regression is from Column (3) of Table 6. Firms that do not experience a CEO change in the sample are omitted. For the M&A logit model, standardized Pearson residuals are calculated.

24

25

a CEOs predecessor. Finally, for a given change in CEO type within a firm, we take the difference between the CEO residuals to measure the impact that CEO type has on firm policy. This allows us to separately measure the impact on a firm of moving from a non-Pilot to a Pilot CEO, moving from a Pilot to a non-Pilot CEO, and experiencing a CEO turnover event but keeping the Pilot status constant.25 Table 8 reports results from this analysis on the three primary corporate policies considered in this study: leverage, M&A activity, and firm risk. The first bin reveals that when firms move from a nonPilot to a Pilot CEO, on average and at the median, leverage, M&A activity, and firm risk all increase. The one-sided t-tests on these changes produce p-values with mixed significance for the three changes, which is not surprising given the small sample size. Further, the second bin shows that when moving from a Pilot to a non-Pilot CEO, leverage, M&A activity, and firm risk all decrease. Again, the p-values report mixed significance for this small sample. Finally, the third bin on a much larger sample reveals that when firms experience CEO turnover but do not change CEO type, their corporate policies do not exhibit a statistically significant change. These results largely support the conclusions reached from prior tables, and show that CEO effects are observed both at hiring and removal of those individuals categorized as sensation seekers.

5.

Conclusion This study analyzes the relation between CEO personal risk-taking and corporate policies. We

proxy for risk-taking behavior using one of the predominant survey components in Zuckermans (1971) Sensation Seeking Scale: the desire to fly an airplane. Using data from the FAA registry of certified pilots, we find that CEO pilots are associated with higher leverage, higher acquisition frequency and greater stock return volatility. At firms with few measurable growth opportunities, risk-taking CEOs pursue acquisitions that are greeted with significantly more positive announcement returns. Finally, we find that the risky policies and elevated equity volatility associated with risk-taking CEOs are not induced
25

In unreported results, we examine the turnover rates and industry-adjusted turnover rates of Pilot CEOs vs. non-Pilot CEOs, but do not observe a statistically significant difference across the two groups.

26

by compensation incentives, suggesting that these CEOs imprint their personal characteristics on the firm beyond the expectations of the board. One important policy implication is that unlike an overconfidence measure based on option holding behavior, which reveals itself only many years after a chief executive is hired, sensation seeking is often observable ex ante to the CEOs tenure. Although flying airplanes may be relatively rare, nearly all CEOs have a driving record. Driving records are not observable to the econometrician studying US CEOs, but are readily available to firms during the CEO hiring process. Zuckerman (1994) notes that driving violations are an excellent way to observe sensation seeking. A board of directors can observe this driving record as well as psychological profiles or personal information that is not available to the general public to develop a sense of whether or not a candidate engages in risk-taking in their private life. We refrain from painting this trait as universally positive or negative, but note that more research is necessary to understand how personal preferences towards risk-taking transfer to decisions made in the executive suite. A promising area for future research will be to better understand the myriad behavioral characteristics, both experiential and genetic, that lie behind differential preferences for risk-taking. Shedding light on these traits and the corporate policies associated with them will ultimately lead to better corporate decision-making.

27

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Appendix A. Survey Evidence on Sensation Seeking

This table reproduces factor analysis results from Zuckerman (1971, Table 1). Survey responses to 113 items are from 160 male and 172 female undergraduate students at Temple University. The subset of significant items for the Thrill and Adventure Seeking factor are reported below in a descending sort on the item loadings from male respondents. Emphasis on fourth item added by authors. Item Loading 72 67 65 63 63 57 55 54 52 52 51 46 44 35 Sensation Seeking Item Choice, Thrill and Adventure Seeking Factor I would like to try surfboard riding. I would like to take up the sport of water-skiing. I would like to try parachute jumping. I would like to learn to fly an airplane. I would like to go scuba diving. I think I would enjoy the sensations of skiing very fast down a high mountain slope. I would like to sail a long distance in a small but seaworthy sailing craft. I would like to drive or ride on a motorcycle. I sometimes like to do things that are a little frightening. Sometimes I like to swim far out from the shore. I like to dive off the high board. I often wish I could be a mountain climber. I like to drive in open convertibles. I enjoy many of the rides in amusement parks.

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Appendix B. Variable Definitions

CEO Characteristics Age CEOs age, updated annually; Source: Compustat Executive Compensation Depression =1 if CEO born between 1920 and 1929, 0 otherwise Military =1 if CEO has military experience, 0 otherwise; coded using BoardEx biographical information Pilot =1 if CEO has had at least one certificate in FAA records, 0 otherwise; Source: Federal Aviation Administration Tenure Years of service as CEO at given firm; Source: Compustat Executive Compensation Firm Characteristics (Source: Compustat) Assets (AT) CapEx (CAPX) Dividend Yield (DVPSP_F / PRCC_F) Firm Age Cumulative number of firm years listed in Compustat Free Cash Flow ([OIBDP XINT TXT CAPX] / ATt-1) Leverage ([DLC + DLTT] / AT) Loss Dummy =1 if negative net income (NI) in given year, 0 otherwise M/B ([PRCC_F * CSHO] / SEQ) Q ([AT SEQ + [PRCC_F * CSHO]] / AT) ROE (EBITDA / ATt-1) Sales Growth (REVT / REVTt-1) Merger Characteristics (Source: Thomson Reuters SDC Platinum) Cash Payment =1 if transaction consideration is cash, 0 otherwise Diversifying =1 if bidder and target in different 3-digit SIC code, 0 otherwise Private Target =1 if target private, 0 otherwise Trans. Value Transaction value in $mms

33

25.00 21.50 20.09

Fatal crashes per million hours

20.00 15.50 15.00 13.70 11.50 10.00 4.70 0.98 helicopter (commercial) helicopter (personal) corporate / executive aircraft motorcycle aerial application aircraft personal / business flying passenger cars commercial airlines hot-air balloon

5.00

0.67

0.06

Figure 1. Fatal crash rates per million hours of various forms of transportation. Data sources are as follows:
Personal/business flying, corporate/executive aircraft, aerial application aircraft: National Transportation and Safety Board Annual Review of Aircraft Accident Data, U.S. General Aviation, Calendar Year 2005; General Aviation and Air Taxi Activity and Avionics Surveys CY2005, Table 1.6. Corporate/executive aircraft category includes a paid, professional flight crew, whereas personal/business flying does not. Motorcycle, passenger cars: National Highway Traffic Safety Administration (NHTSA), Fatality Analysis Reporting System Encyclopedia. To convert miles driven to hours driven, we assume an average speed of 55 miles per hour. Hot-air balloons: National Transportation and Safety Board Annual Review of Aircraft Accident Data, U.S. General Aviation, Lighter-than-air craft category. Helicopter (personal, business): 2009 Nall Report, An AOPA Air Safety Foundation Publication. Commercial airlines: National Transportation and Safety Board, Aviation Accident Statistics, Table 6.

34

Table 1. Variable Descriptive Statistics

Panel A reports sample descriptive statistics and Panel B reports pair-wise variable correlations, with correlations significant at the 5% level or greater denoted with an *. The sample contains 179 CEO pilots, and the first section of Panel A reports the proficiency levels attained by CEO pilots and aircraft certificate ratings. These levels and ratings are not mutually exclusive i.e., CEOs may hold multiple certificates and ratings. Airman certificate information is obtained from the Federal Aviation Administrations (FAA) Airmen Certification database (https://amsrvs.registry.faa.gov/airmeninquiry/), which includes both active and inactive certificates. All variables are defined in Appendix B.

35

Table 1, Panel A. Sample Descriptive Statistics

CEO Pilots (N = 179) Pilot Certificates Airline Transport Pilot Commercial Pilot Private Pilot Student Pilot Flight Instructor Ground Instructor None N 13 29 118 14 5 9 4 Certificate Ratings Single Engine Airplane Instrument Rating Multiengine Airplane Helicopter Water Landing Glider Hot Air Balloon Experimental Aircraft Number of CEOs Pilot Depression Baby Military Experience Yes N 179 251 304 % 5.8% 4.6% 8.1% Firm-Years CEO Characteristics Pilot Depression Baby Military Experience Age Tenure Firm Characteristics Leverage Sales Growth ROE Return Volatility Ln(Assets) Ln(Firm Age) M/B Free Cash Flow CapEx Loss Dummy Dividend Yield N 15,627 27,049 19,610 27,049 25,158 Mean 0.065 0.035 0.090 55.7 7.1 Mean 0.234 1.134 -0.017 0.388 7.457 2.988 3.148 0.028 0.067 0.179 0.017 SD 0.246 0.183 0.286 7.5 7.3 SD 0.186 0.273 0.333 0.229 1.778 0.742 2.499 0.226 0.093 0.383 0.188 Q1 Median 0 0 0 51 2 0 0 0 56 5 Q3 0 0 0 61 10 Q3 0.350 1.203 0.070 0.480 8.580 3.664 3.786 0.082 0.082 0 0.022 N 2,931 5,220 3,470 No % 94.2% 95.4% 91.9% N 157 86 55 10 10 4 3 3

Q1 Median 0.075 1.006 0.021 0.229 6.190 2.398 1.493 0.004 0.023 0 0.000 0.220 1.088 0.047 0.328 7.299 3.045 2.267 0.040 0.046 0 0.006

36

Table 1, Panel B. Variable Correlations

Pilot Pilot Depression Military Age Tenure Leverage Sales Growth ROE Return Volatility Ln(Assets) M/B Free Cash Flow CapEx Loss Dummy Dividend Yield 1 -0.0115 0.0903* 0.0171* 0.0114 0.0148 0.0037 0.0081 0.0166* 0.0004 -0.0206* -0.0058 0.0149 0.0171* -0.0034 1 0.1115* 0.3592* 0.2609* -0.0085 -0.0104 0.0208* -0.0406* -0.0430* -0.0211* 0.0050 0.0256* -0.0232* -0.0023 1 0.1872* 0.0532* 0.0479* -0.0030 0.0284* -0.0836* 0.1140* 0.0072 0.0115 -0.0126 -0.0379* 0.0292* 1 0.4231* 0.0556* -0.0953* 0.0480* -0.1617* 0.1331* -0.0720* 0.0465* -0.0304* -0.0857* 0.0142* 1 -0.0419* -0.0465* 0.0445* -0.0136* -0.0583* -0.0071 0.0226* 0.0366* -0.0779* -0.0073 1 -0.0414* -0.1196* -0.0635* 0.2455* 0.0741* -0.1010* 0.0007 0.1053* 0.0463* 1 0.1443* 0.0847* -0.0521* 0.1505* 0.0023 0.2510* -0.1400* -0.0244* 1 -0.3658* 0.1095* -0.0943* 0.1665* 0.0627* -0.5098* -0.0029 1 -0.3587* 0.1045* -0.1891* 0.0950* 0.4004* -0.0829* 1 -0.0937* 0.0902* -0.1089* -0.1744* 0.0260* 1 0.0077 0.1053* -0.0077 -0.0069 1 -0.4314 -0.2353* 0.0051 1 -0.0411* -0.0166* 1 -0.0083 1 Dep. Military Age Tenure Leverage Sales Growth Return ROE Volatility Ln(Assets) M/B Free Cash Flow CapEx Loss Dummy Dividend Yield

37

Table 2. CEO Pilot Sample Location and Industry Distribution

Panel A reports the location distribution of firm headquarters for the CEO pilot sample, by Metropolitan Statistical Area (MSA). Panel B reports the industry distribution of the sample, by two-digit SIC code. Panel A: Pilot Firm Locations MSA# 41940 35620 26420 33460 16980 19100 31100 14460 41860 41180 47900 12060 17460 17140 19740 29820 37980 38900 41700 41740 N 17 16 10 10 9 8 7 6 5 4 4 3 3 2 2 2 2 2 2 2 % 10.0% 9.4% 5.9% 5.9% 5.3% 4.7% 4.1% 3.5% 2.9% 2.4% 2.4% 1.8% 1.8% 1.2% 1.2% 1.2% 1.2% 1.2% 1.2% 1.2% MSA Description San Jose-Sunnyvale-Santa Clara, CA New York-Northern New Jersey-Long Island, NY-NJ-PA Houston-Sugar Land-Baytown, TX Minneapolis-St. Paul-Bloomington, MN-WI Chicago-Naperville-Joliet, IL-IN-WI Dallas-Fort Worth-Arlington, TX Los Angeles-Long Beach-Santa Ana, CA Boston-Cambridge-Quincy, MA-NH San Francisco-Oakland-Fremont, CA St. Louis, MO-IL Washington-Arlington-Alexandria, DC-VA-MD-WV Atlanta-Sandy Springs-Marietta, GA Cleveland-Elyria-Mentor, OH Cincinnati-Middletown, OH-KY-IN Denver-Aurora, CO Las Vegas-Paradise, NV Nashville-Davidson--Murfreesboro--Franklin, TN Portland-Vancouver-Beaverton, OR-WA San Antonio, TX San Diego-Carlsbad-San Marcos, CA

Panel B: Pilot Firm Industries SIC2 73 36 35 49 20 37 38 33 28 60 80 29 48 13 39 87 N 18 13 11 11 10 10 8 7 6 6 6 5 5 4 4 4 % 10.6% 7.6% 6.5% 6.5% 5.9% 5.9% 4.7% 4.1% 3.5% 3.5% 3.5% 2.9% 2.9% 2.4% 2.4% 2.4% SIC Description Business services Electronic equipment and components, except computer equipment Industrial and commercial machinery and computer equipment Electric, gas, and sanitary services Food and kindred products Transportation equipment Instruments and related products Primary metal industries Chemicals and allied products Depository Institutions Health services Petroleum and coal products Communications Oil and gas extraction Miscellaneous manufacturing industries Engineering and management services

38

Table 3. CEO Pilots and Firm Leverage

OLS regressions with book leverage as the dependent variable. Book leverage is defined as current plus long-term debt, divided by total assets. A constant is included in all models. Independent variables are defined in Appendix B. Standard errors are clustered by firm, and p-values are in parentheses with ***, **, and * representing significance at the 1%, 5%, and 10% levels, respectively. (1) CEO Characteristics Pilot Age Tenure Depression Military Firm Characteristics Sales Growth ROE M/B Ln(Assets) 0.003 (0.605) -0.029 *** (0.000) -0.014 *** (0.000) 0.010 * (0.080) 0.007 (0.311) -0.027 *** (0.000) -0.016 *** (0.000) 0.007 (0.381) 0.033 ** (0.022) 0.001 (0.510) -0.001 (0.392) -0.017 (0.695) -0.024 (0.159) 0.033 ** (0.019) 0.001 (0.346) -0.001 (0.299) -0.008 (0.842) -0.021 (0.209) (2)

Firm Fixed Effects Year Fixed Effects Observations Firms R

2

Yes No 11,003 1,590 78.01%

Yes Yes 11,003 1,590 78.68%

39

Table 4. Acquisitiveness of CEO Pilots

Logit models in which the dependent variable equals one if the firm announces a successful merger bid in a given year and zero otherwise. A constant is included in all models. Independent variables are defined in Appendix B. Coefficients are reported as odds ratios. P-values are in parentheses with ***, **, and * representing significance at the 1%, 5%, and 10% levels, respectively. (1) CEO Characteristics Pilot Depression Military Age Tenure Firm Characteristics Leverage Dividend Yield Loss Dummy Ln(Assets) Free Cash Flow Q CapEx 1.434 ** (0.011) 1.142 (0.767) 0.897 (0.425) 0.990 * (0.094) 1.032 *** (0.002) 0.760 (0.153) 0.000 *** (0.000) 0.850 * (0.060) 1.257 *** (0.000) 6.236 *** (0.000) 1.061 ** (0.031) 8.018 *** (0.000) No No 9,912 1,463 43.66% (2) 1.403 ** (0.017) 1.290 (0.577) 0.893 (0.413) 0.990 * (0.099) 1.038 *** (0.001) 0.700 * (0.068) 0.000 *** (0.000) 0.850 * (0.065) 1.264 *** (0.000) 2.584 *** (0.000) 0.029 (0.144) 4.845 *** (0.000) No Yes 9,912 1,463 43.92% (3) 1.369 ** (0.018) 0.888 (0.785) 0.956 (0.730) 0.997 (0.640) 1.023 ** (0.021) 1.179 (0.396) 0.001 *** (0.002) 0.756 *** (0.001) 1.360 *** (0.000) 5.850 *** (0.000) 0.995 (0.858) 20.595 *** (0.000) Yes No 9,912 1,463 46.69% (4) 1.344 ** (0.027) 0.960 (0.926) 0.946 (0.669) 0.998 (0.692) 1.031 *** (0.005) 1.109 (0.603) 0.004 ** (0.011) 0.757 *** (0.001) 1.374 *** (0.000) 6.405 *** (0.000) 0.975 (0.357) 23.808 *** (0.000) Yes Yes 9,912 1,463 46.97% 0.992 * (0.079) 1.036 *** (0.000) 1.310 * (0.090) 0.001 *** (0.000) 0.725 *** (0.000) 1.359 *** (0.000) 3.278 *** (0.000) 1.004 (0.846) 8.641 *** (0.000) Yes Yes 15,152 2,174 21.49% (5)

Industry Fixed Effects Year Fixed Effects Observations Firms Pseudo R2

40

Table 5. CEO Pilots and M&A Announcement Returns

OLS regressions with bidder announcement returns as the dependent variable. Abnormal returns are calculated over the window from one day prior to one day following merger announcements (-1, +1), using the S&P 500 Index as the expected return. A constant is included in all models. Independent variables are defined in Appendix B; all bidder characteristics are lagged by one year. Standard errors are clustered by firm and year, and p-values are in parentheses with ***, **, and * representing significance at the 1%, 5%, and 10% levels, respectively.
Full Sample (1) CEO Characteristics Pilot Depression Military Age Tenure Bidder Characteristics Ln(Firm Age) 0.004 (0.312) -0.002 (0.903) -0.003 (0.590) -0.000 (0.752) -0.000 (0.193) (2) Low B/M Bidders (3) (4) 0.001 (0.918) 0.027 * (0.099) -0.004 (0.620) -0.000 (0.988) -0.001 (0.265) -0.005 * (0.072) -0.004 (0.449) 0.035 * (0.089) -0.002 * (0.097) 0.009 (0.683) 0.014 (0.384) 0.131 (0.490) 0.008 * (0.076) 0.001 (0.601) 0.022 *** (0.000) 0.000 (0.961) No Yes 1,303 399 6.13% 0.000 (0.985) 0.038 ** (0.014) -0.004 (0.652) 0.000 (0.821) -0.000 (0.954) -0.003 (0.250) -0.004 (0.456) 0.024 (0.226) -0.002 * (0.099) 0.014 (0.557) 0.014 (0.383) 0.083 (0.662) 0.012 *** (0.003) 0.001 (0.699) 0.024 *** (0.000) -0.001 (0.760) Yes Yes 1,303 399 7.22% High B/M Bidders (5) (6) 0.009 ** (0.050) -0.015 (0.249) -0.001 (0.848) -0.000 (0.835) -0.000 (0.600) 0.005 (0.149) -0.018 (0.539) 0.008 (0.697) -0.003 ** (0.035) 0.004 (0.290) 0.007 (0.579) -0.100 (0.587) -0.002 (0.593) -0.001 (0.125) 0.019 *** (0.000) 0.000 (0.954) No Yes 1,164 489 7.55% 0.009 * (0.065) -0.007 (0.614) -0.004 (0.440) -0.000 (0.785) 0.000 (0.924) 0.006 (0.119) -0.016 (0.582) 0.007 (0.737) -0.003 ** (0.044) 0.004 (0.322) 0.005 (0.674) -0.124 (0.528) -0.002 (0.700) -0.001 (0.120) 0.019 *** (0.000) 0.000 (0.919) Yes Yes 1,164 489 9.11%

0.003 (0.488) 0.001 (0.963) -0.003 (0.515) -0.000 (0.731) -0.000 (0.781) 0.001 (0.588) -0.005 (0.367) 0.021 ** (0.041) -0.003 *** (0.002) 0.007 (0.394) 0.012 (0.217) -0.057 (0.690) 0.005 (0.102) -0.000 (0.887) 0.022 *** (0.000) -0.000 (0.864) Yes Yes 2,467 742 5.60%

0.000 (0.936) Free Cash Flow -0.005 (0.371) CapEx 0.026 *** (0.008) Ln(Assets) -0.003 *** (0.003) Loss Dummy 0.007 (0.445) Leverage 0.013 (0.179) Dividend Yield -0.015 (0.909) Transaction Characteristics Cash Payment 0.002 (0.408) Ln(Trans.Value) -0.000 (0.858) Private Target 0.021 *** (0.000) Diversifying 0.000 (0.919) Year Fixed Effects Industry Fixed Effects Observations Firms R2 No Yes 2,467 742 5.06%

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Table 6. CEO Pilots and Firm Risk

OLS regressions with annualized standard deviation of firm-level monthly stock returns as the dependent variable. A constant is included in all models. M&A Activity is a binary variable that takes the value one if the firm completed an acquisition in a given year and zero otherwise. All other independent variables are defined in Appendix B. Standard errors are clustered by firm, and p-values are in parentheses with ***, **, and * representing significance at the 1%, 5%, and 10% levels, respectively. (1) CEO Characteristics Pilot Depression Military Age Tenure Firm Characteristics M&A Activity Pilot * M&A Activity Leverage Sales Growth ROE M/B Ln(Assets) Ln(Firm Age) Year Fixed Effects Industry Fixed Effects Observations Firms R2 0.002 (0.912) 0.015 (0.442) 0.081*** (0.000) (2) (3) 0.033*** (0.002) 0.030 (0.373) -0.011 (0.178) (4) 0.021* (0.060) (5) 0.022 (0.107) 0.015 (0.742) -0.021 ** (0.042) (6) 0.023 ** (0.025) 0.030 (0.383) -0.012 (0.158)

0.031 *** 0.033 ** (0.009) (0.016) 0.015 (0.745) -0.021 ** (0.043)

-0.002 *** -0.002 *** -0.001** (0.000) (0.000) (0.021) -0.000 (0.547) -0.001 (0.242) -0.001 (0.237)

-0.002*** -0.002 *** -0.001 ** (0.000) (0.000) (0.018) -0.000 (0.554) -0.003 (0.512) 0.037* (0.057) 0.002 (0.897) -0.001 (0.243) -0.003 (0.546) 0.041 * (0.052) 0.015 (0.433) -0.001 (0.268) -0.024 *** (0.000) 0.035 ** (0.038) 0.082 *** (0.000)

0.040 *** 0.040 *** 0.049*** (0.000) (0.000) (0.000) -0.212 *** -0.217 *** -0.169*** (0.000) (0.000) (0.000) 0.008 *** 0.008 *** 0.005** (0.004) (0.007) (0.043) -0.030 *** -0.031 *** -0.032*** (0.000) (0.000) (0.000) -0.064 *** -0.063 *** -0.035*** (0.000) (0.000) (0.000) No No 13,719 1,942 29.76% No No 10,697 1,567 28.76% Yes Yes 10,697 1,567 52.85%

0.040*** 0.040 *** 0.053 *** (0.000) (0.000) (0.000) -0.212*** -0.217 *** -0.168 *** (0.000) (0.000) (0.000) 0.008*** 0.008 *** 0.005 ** (0.004) (0.007) (0.043) -0.030*** -0.031 *** -0.030 *** (0.000) (0.000) (0.000) -0.064*** -0.063 *** -0.036 *** (0.000) (0.000) (0.000) No No 13,719 1,942 29.79% No No 10,697 1,567 28.80% Yes Yes 10,697 1,567 53.02%

42

Table 7. Compensation Structure

OLS regressions with various compensation measures as the dependent variable. Dependent variables are total compensation, delta of CEO equity and option holdings, and vega of CEO equity and option holdings. Independent variables are defined in Appendix B. All models include a constant, and all estimations include industry and year fixed effects. Standard errors are clustered by firm, and p-values are in parentheses with ***, **, and * representing significance at the 1%, 5%, and 10% levels, respectively. Ln(Total Comp) (1) Pilot Age Tenure Leverage Sales Growth ROE M/B Size -0.007 (0.894) -0.001 (0.678) 1.001 (0.920) -0.135 (0.145) 0.080 * (0.078) 0.085 (<0.001) 0.121 *** (<0.001) 0.427 *** (<0.001) Delta (2) 1.099 (0.978) -0.364 (0.852) 53.041 *** (<0.001) -198.918 *** (0.002) 144.158 *** (<0.001) 22.587 ** (0.040) 154.245 *** (<0.001) 203.016 *** (<0.001) Vega (3) -5.863 (0.521) 0.184 (0.541) 6.066 *** (<0.001) -42.116 *** (<0.001) -14.597 *** (0.001) 20.552 *** (<0.001) 17.245 *** (<0.001) 56.019 *** (<0.001)

Industry Fixed Effects Year Fixed Effects Observations Firms R

2

Yes Yes 14,096 1,976 42.38%

Yes Yes 14,204 1,980 38.60%

Yes Yes 14,204 1,980 46.59%

43

Table 8. Corporate Policy Changes Around CEO Turnover Events

Summary statistics on changes in corporate policy around CEO turnover events. Turnover events are classified into three categories: going from a non-pilot to a pilot CEO, going from a pilot to a non-pilot CEO, and switching CEOs but not their pilot status. For each switch, the change in corporate policy is estimated as follows. First, a regression excluding the Pilot independent variable is estimated from prior tables. The leverage regression is from Column (2) of Table 3, the M&A regression is from Column (4) of Table 4, and the firm risk regression is from Column (3) of Table 6. Next, the firm-year residuals from each regression are averaged for each CEO, excluding the first year of a CEOs tenure at a firm. For the M&A logit model, standardized Pearson residuals are calculated. Finally, the average residuals are differenced between CEO changes for each category. The reported change for each variable represents the change in corporate policy associated with a given change in CEO type after controlling for the other firm characteristics included as independent variables in the first stage regressions. P-values from t-tests on difference of means from zero are given in parentheses. Changes in Corporate Policies Non-Pilot to Pilot Leverage M&A Activity Firm Risk Pilot to Non-Pilot Leverage M&A Activity Firm Risk Same Pilot Status Leverage M&A Activity Firm Risk N 21 19 21 N 21 20 20 N 392 352 385 Mean 0.042 0.252 0.039 Mean -0.038 -0.307 -0.069 Mean -0.003 0.044 -0.008 Median 0.043 0.342 0.043 Median -0.078 -0.342 -0.023 Median -0.012 0.017 0.010 >0 (0.030) (0.192) (0.085) <0 (0.135) (0.070) (0.013) =0 (0.703) (0.428) (0.171)

44