CEO wealth and company risk : an empirical investigation of relationships between CEO wealth and leverage ratios

Abstract

Capital structure theorists have argued for different determinants of leverage ratios throughout the age of modern corporate finance literature, with thorough empirical evidence of key determinants having surfaced in recent years. In this paper I add risk aversion into the equation, and find a significant relationship between CEO risk aversion proxied by non-firm wealth and leverage ratios. I also find significant relationships between percentage of wealth at stake in the company the CEO manages and leverage ratios, although this latter finding should be treated with caution due to the contingency of causality.