What Doesn't Kill You Will Only Make You More Risk-Loving: Early-Life Disasters and CEO Behavior

Abstract

The literature on managerial style posits a linear relation between a CEO's past experiences and firm risk. We show that there is a non-monotonic relation between the intensity of CEOs' earlylife exposure to fatal disasters and corporate risk-taking. CEOs who experience fatal disasters without extremely negative consequences lead firms that behave more aggressively, whereas CEOs who witness the extreme downside of disasters behave more conservatively. These patterns manifest across various corporate policies including leverage, cash holdings, and acquisition activity. Ultimately, the link between CEOs' disaster experience and corporate policies has real economic consequences on firm riskiness and cost of capital.

Confucianism, openness to the West, and corporate investment efficiency

“…As Table suggests, early‐life exposure to Confucianism indeed improves investment efficiency, mainly via decreasing overinvestment. Similar to prior research (Bernile et al, ; Graham & Narasimhan, ; Lin et al, ), one weakness of such an empirical approach is that we do not directly observe a CEO's early experience, but infer it based on the CEO's province or city of birth. Therefore, we conduct a placebo test where we assign a random birthplace to each CEO and find no statistically significant effects of the hypothetical random exposure to Confucianism on investment efficiency variables.…”

“…Inspired by psychology and medical research, some studies indicate that early‐life and career experiences have a non‐monotonic impact on CEOs’ personal values and managerial styles, which consequently determines corporate policies (Bernile, Bhagwat, & Rau, ; Graham & Narasimhan, ; Lin, Ma, Officer, & Zou, 2014). Further, Fernández () suggests that when individuals emigrate from their native birthplace to a new location, their external economic and institutional environments are left behind, but their cultural beliefs and values travel with them.…”

Management Characteristics and Corporate Risk-taking: An Overall Review

“…For example, CEOs who experienced the reform and open-up in early adulthood tend to have higher likelihood of risk taking and more risk preference than CEOs who were grow-up in central planning era experienced economic recessions. The personal experience is including the events managers have experienced, such as educational and career background [42]; military background [12]; marital status [43][44][45]; early-life disasters [46]. The literature is somehow for a deficiency of systematic and comprehensive.…”

From Playground to Boardroom: Endowed Social Status and Managerial Performance

“…Environments perceived as highly uncertain are likely to be viewed as very risky. Decision-making under uncertainty requires information about the likelihood of alternative states, and how states and actions affect firm out-13 comes (Boyd (1990) Bernile et al (2017), who examine the effect of CEOs' early life experiences on risktaking behavior, are able to find the birth places of approximately 31% of the CEOs in their sample.…”