Home Faculty Executive career and firm outcomes linked to extraversion

Executive career and firm outcomes linked to extraversion

2033

People with outgoing personalities get noticed. Heads turn toward those with charismatic voices, emotional speech, high energy, empathetic gestures, and engaging smiles, but on the corporate front, how do these traits come to bear on executive compensation, hiring, and firm outcomes?

T. Clifton Green
T. Clifton Green, professor of finance at Goizueta Business School

“The short answer is that extraversion is associated with positive career and firm outcomes,” said T. Clifton Green, professor of finance at Emory’s Goizueta Business School, whose published work Executive Extraversion: Career Firm and Outcomes (The Accounting Review, 2019), explores this phenomenon.

The study, with coauthors Russell Jame 10PhD,  University of Kentucky’s Gatton College of Business and Economics, and Brandon Lock 12BBA Baruch College’s Zicklin School of Business, City University of New York, highlights the role of personality traits in explaining executive promotions, job tenure, and outside board service. Green also finds evidence that having an extraverted CEO bodes well for investor recognition, sales growth, and acquisitions.

How Does Being Extraverted Impact Careers?

The study emphasizes the personality trait of Extraversion, which is often described as “the single most important aspect of an individual’s personality,” according to Green, with the other of the Big Five traits being Agreeableness, Openness, Emotional Stability, and Conscientiousness. Extraverts tend to be outgoing and gain energy from being around others, whereas introverts tend to be more reserved and recharge through solitude. Psychology research identifies extraversion as the personality trait most closely associated with leadership emergence.

The challenge to studying the effects of personality in a corporate setting is obtaining measures of extraversion for a large sample of executives. Green’s innovation is to rely on algorithms from linguistic psychology. “Extraversion is relatively easy to detect through communication patterns. In spoken text, extraverts tend to have a higher verbal output, speak more quickly and with fewer pauses, use less word variety and more informal language, and are more assertive,” he said. “These differences have allowed researchers in psycholinguistics and artificial intelligence to develop fairly accurate personality models based on linguistic outputs.”

Green applies linguistic algorithms to executives’ spoken language during the less-scripted Question and Answer portions of 65,000 quarterly earnings conference calls obtained from Thomson Reuters StreetEvents and SeekingAlpha.com. This allows the authors to infer measures of extraversion for more than 4,500 CFOs and CEOs at S&P 1500 firms during the 2006-2013 study period. To help validate the textual approach, the authors compare the linguistic measures to listener-based assessments for a subset of the sample and find that listener-based and algorithm-based extraversion measures agree almost 70 percent of the time.

Analyzing career data from ExecuComp, the authors find that extraverted CEOs and CFOs earn 6-9 percent higher salaries after controlling for firm characteristics. In addition to salary benefits, the evidence suggests that extraverted CEOs are less likely to experience job turnover, have longer job tenures on average, and serve on more outside corporate boards. The study also finds that extraverted CFOs are more likely to be promoted to CEO.

Executive extraversion is also associated with firm outcomes. Analyzing a sample of manager transitions, Green finds that increases in CEO extraversion are associated with improvements in investor recognition and sales growth. Moreover, extraverted CEOs are associated with higher acquisition announcement returns.

Hope for Introverts

Although the evidence points towards clear benefits for extraverts, Green notes that the news is not all bad for introverts. The studies’ extraversion measures are inferred from how executives behave in earnings calls rather than how they might truthfully respond to personality surveys, and it is possible for introverts to appear extroverted. Green said, “Introverts can practice being energetic and outgoing during presentations and other high-impact interactions, and perhaps decompress afterwards with some time alone.”

Learn more about additional Goizueta faculty research here.

Print Friendly