Criminal Convictions and Risk Taking : Empirical Evidence from Sweden

An analysis of a unique proprietary dataset reveals that non-trivial proportions of directors, CEOs and CFOs in Swedish listed companies have been convicted of crimes. Based on prior literature, we argue that directors and senior executives with prior criminal convictions are more prone to take risk. Consistent with this argument, we find that firms appointing criminally convicted directors and CEOs report more volatile earnings, engage more in goodwill writeoffs due to unsuccessful acquisitions, and recognize bad news in earnings in a less timely manner. Moreover, we find that these firms are, on average, less profitable, and smaller. These findings highlight the role personal characteristics of directors and senior management play in managerial decisions. Our results suggest that firms should put more emphasis on personal characteristics in appointing directors and senior executives