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Review of Quantitative Finance and Accounting
Published in:

06-07-2023 | Original Research

Chairperson (CEO) facial structure and risky investments: evidence from Chinese acquisitions

Authors: Wen Shi, Xiaogang Bi, Agyenim Boateng, Shuai Yuan

Published in: Review of Quantitative Finance and Accounting | Issue 4/2023

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Abstract

This study examines whether and how chairperson facial masculinity, a personality trait that signifies dominant power, influences firm value of mergers and acquisitions (M&As) over the 2004–2016 period. Using facial width-to-height ratio (FWHR) to assess personality from 1225 facial images (photos) of chairpersons of 1780 Chinese acquiring firms, we find chairpersons with high FWHR to exert a negative and significant influence on acquirer stock returns surrounding acquisition announcements, returns on assets and Tobin’s Q, suggesting that chairpersons with high FWHR destroy the value of acquiring firms in both the short and long term. Further analysis examining the potential channels through which the chairperson’s dominant power destroys firm value of M&As suggests that the time taken to complete the M&A transaction, the use of more leverage and the non-employment of professional transaction advisors explain the results. Our results remain robust after controlling for acquirer and deal characteristics, corporate governance variables and chairperson’s personal characteristics and accounting for endogeneity concerns.
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Appendix
Available only for authorised users
Footnotes
1
In China, the term chairpersons refers to CEOs, who are often called Yi-Ba-Shou (number one) (Feng and Johansson 2017).
 
2
FWHR is the ratio of distance between the left and right zygion to the distance between the brow and upper lip (Wong et al. 2011).
 
3
Testosterone is an anabolic steroid and a type of primary male hormone that is important in regulating many aspects of male reproductive physiology.
 
4
We also examined the effects of high FHWR on other event windows (−2,2; −5,5; −10,10) and the results remain unchanged. To conserve space, we did not report the results, but they are available on request.
 
5
In our samples, only 67 firms out of the sample firms have stock option data.
 
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Metadata
Title
Chairperson (CEO) facial structure and risky investments: evidence from Chinese acquisitions
Authors
Wen Shi
Xiaogang Bi
Agyenim Boateng
Shuai Yuan
Publication date
06-07-2023
Publisher
Springer US
Published in
Review of Quantitative Finance and Accounting / Issue 4/2023
Print ISSN: 0924-865X
Electronic ISSN: 1573-7179
DOI
https://doi.org/10.1007/s11156-023-01179-8

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