“A risk-taking environment starts at the top of a corporation. If the CEO doesn’t have this spirit, chances are you won’t find it anywhere else in the organization.” Mary Kay Ash Founder of Mary Kay Cosmetics.
A chief executive officer (CEO) is the highest-ranking executive in a company, and their primary responsibilities include making major corporate decisions, managing the overall operations and resources of a company, and acting as the main point of communication between the board of directors and corporate operations.
Therefore the number of academic reports and studies on the topic of Chief Executive Officers (CEOs) and their influence on the firms performance have considerably grown over recent years. Mainly researchers working in the field of organizational studies and management have examined numerous aspects concerning CEOs themselves as well as their functioning and fitting within the boundaries of modern enterprises. The role of the organization’s most powerful executive is one that undoubtedly influences the economic prosperity of a company in a significant way. Although a CEO’s role in a firm maybe limited to a certain extent, that the decisive power connected with the position is not to be underestimated. Therefore, it becomes clear why this field of research has attracted so much attention over the last years and why it presumably will remain one of the more popular topics in business studies to explore.
One distinguishing characteristics of a CEOs that has been discussed by many scholars is the “age” of a successive CEO. The main focus here lies on the fact whether the CEO is “young” or “old”. Young CEOs (under 40) tend to be more innovative and more energetic. Old CEOs, on the other hand, tend to be more skilled, have wider range of experience and more balanced nuanced in their judgment. The question of which option to choose and how firm performance will be influenced by this fact has been rather differently answered by various researchers (Sigler KJ, 2015).
In general, there are two main streams of argumentation have established among the academic community. One is Impetuous Youngsters and Jaded Old-timers: Acquiring a Reputation for Learning (Prendergast C., Stole L., 1996), which states that younger CEOs make more and riskier investments when compared to older CEOs because younger CEOs pursue an aggressive investment agenda in an effort to signal to the market that they are of superior ability. In addition, older CEOs won’t change investment strategy because it may signal that their earlier investment decisions were incorrect. The second is Managerial Incentive Problems: A Dynamic Perspective (Holmstrom B,1991) which states younger CEOs are more risk averse and invest less aggressively than older CEOs since younger CEOs don’t have a track record of accomplishments as that of older CEOs, they risk being judged more critically by the market place if they make poor investment decisions, which may significantly reduce future career opportunities.
Recently, a new approach to the discussion about whether a CEOs age should be young or old emerged amidst the academic community. It aims to integrate the level of firms risk-taking. In this context Michael J. Imhof and Scott E. Seavey (2014), suggest that corporate risk-taking is associated with higher future firm value. In other words, risk-taking is an inevitable process for a firm, but what drives a firm’s risk-taking behavior remains a tangled issue. Therefore, it appears that there is a lot of room for further research. Hence, this paper aims to answer just a little part of this highly complex topic.
The research gap to be closed in this paper and as our main source, Season of a CEO’s Tenure (Hambrik, D.C., & Fukutomi,G.D. , 1991), mentions it is necessary that executive tenures need to be modeled dynamically, possibly in terms of phases of seasons. But instead of focusing on the tenure of a CEO we want to focus on his age. According to one article by (Gabarro’s,1987) finding that new (general) managers undertook a large immediate wave of changes, predominant in the functional areas in which they had the most experience. Also many papers focus on how the personality of a CEO influences a firms performance (Chatterjee Hambrick, 2007). Prior research and theories have already been established, examining the influence of a CEOs age on the companies strategies. We focus on the correlation between the age of a CEO and the level of risk taking of the company in different dimensions, in which many findings already exist. The research question will be:
” How does the age of a CEO affect the level of risk taking in a company? ”
The purpose of this research question is to contribute to the general effort of creating a consistent and profound system of understanding how CEOs have to be chosen according to the needs of a company. Another very important factor is for investors knowing the company’s level of risk taking.