Too Negative to Take Risks? The Effect of the CEO's Emotional Traits on Firm Risk
| Date | 01 June 2010 |
| Author | Juan Bautista Delgado‐García,Esther De Quevedo‐Puente,Juan Manuel De La Fuente‐Sabaté |
| Published date | 01 June 2010 |
| DOI | http://doi.org/10.1111/j.1467-8551.2008.00625.x |
Too Negative to Take Risks? The Effect of
the CEO’s Emotional Traits on Firm Risk
Juan Bautista Delgado-Garcı
´a, Juan Manuel de la Fuente-Sabate
´and
Esther de Quevedo-Puente
Universidad de Burgos, Facultad de CC.EE. y Empresariales, C/Los Parralillos, s/n
09001 Burgos, Spain
Email: jbdelgado@ubu.es; jmfuente@ubu.es; equev@ubu.es
Except for some recent survey and experimental studies, strategic management
research has tended to neglect the influence of emotions on managers’ strategic choices.
This paper analyses the influence of the stable, long-term emotional traits of CEOs on
an actual business outcome: risk taking. The hypotheses are tested on a sample of 51
Spanish banks and savings banks. Our results show that CEO affective traits influence
banks’ risk taking. Specifically, our analyses show that managers’ negative affective
traits are related to lower risk taking as reflected in a lower variability in performance,
a lower level of credit risk and a less risky composition of the loan portfolios of the
banks they manage. Positive affective traits do not seem to influence the level of risk.
These findings partially support ‘affect congruency and generalization’ arguments, and
show the need to consider the role of affects when analysing CEOs’ strategic choices.
Introduction
Analyses of the role of emotions in organizations
have developed significantly during the last
decades (e.g. Ashforth and Humphrey, 1995;
Ashkanasy, Zerbe and Ha
¨rtel, 2005; Fineman,
1993; Wegge et al., 2006; Weiss and Cropanzano,
1996). This interest has also extended to the
analysis of top managers and their strategic
choices (Daniels, 1998, 1999, 2003; Hodgkinson
and Sparrow, 2002). No doubt emotions are an
integral part of everyday managerial life, and can
condition managers’ decisions. Indeed, experi-
mental and survey studies on practising managers
and MBA students have evidenced the impact of
their affects
1
on selective perception (Daniels,
1998), the choice of an information processing
strategy (Elsbach and Barr, 1999; Staw and
Barsade, 1993) and risk-taking propensity (Mittal
and Ross, 1998; Moreno, Kida and Smith, 2002).
But can we then expect specific effects on firm
strategy? The answer to this question, which has
not yet been addressed, will provide a more
complete understanding of the role of emotions
in the field of strategic management. In order to
answer it, we examine the influence of CEO
affective traits – stable individual differences in
the long-term tendencies to experience positive or
negative affects (Rusting, 1998; Watson, Clark
and Tellegen, 1988) – on an actual business out-
come that represents an essential element of
strategic management (Noy and Ellis, 2003;
Previous versions of this paper were presented at the
24th SMS International Annual Conference, the British
Academy of Management 2005 conference, the ACEDE
2005 conference and the AECA 2007 conference. We are
grateful to the participants for their helpful comments.
Special thanks to the editor-in-chief and the two
anonymous reviewers. Any remaining errors are entirely
our responsibility.
1
The literature on emotions employs different terms,
such as affect,mood or emotion, which are sometimes
difficult to distinguish. We follow Forgas (1991) and
other theorists who use affect as a general inclusive label
that refers to both emotion and mood.
British Journal of Management, Vol. 21, 313–326 (2010)
DOI: 10.1111/j.1467-8551.2008.00625.x
r2009 British Academy of Management. Published by Blackwell Publishing Ltd, 9600 Garsington Road, Oxford
OX4 2DQ, UK and 350 Main Street, Malden, MA, 02148, USA.
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