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

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.