Do Managerial Motives Influence Firm Risk Reduction Strategies?


  • DON O. MAY

    Search for more papers by this author
    • Sloan School of Management, Massachusetts Institute of Technology, Cambridge. This paper is adapted from my doctoral dissertation at the Graduate School of Business, University of Chicago. I have very much benefited from the comments of Andrew Alford, Eugene Fama, Rob Gertner, Paul Healy, Dalia May, Mark Mitchell, and Mitch Petersen. I also wish to thank seminar participants at Boston College, University of Chicago, Emory University, University of Utah and the University of Washington. I am especially indebted to Paul Asquith, Steven Kaplan, Abbie Smith, René Stulz (the editor), Robert Vishny, and two anonymous referees. George Ahia, Jane Bajc, and Cecile Rachele Jean provided much appreciated research assistance.


This article finds evidence consistent with the hypothesis that managers consider personal risk when making decisions that affect firm risk. I find that Chief Executive Officers (CEOs) with more personal wealth vested in firm equity tend to diversify. CEOs who are specialists at the existing technology tend to buy similar technologies. When specialists have many years vested, they tend to diversify, however. Poor performance in the existing lines of business is associated with movements into new lines of business.