What Doesn't Kill You Will Only Make You More Risk-Loving: Early-Life Disasters and CEO Behavior
Singapore Management University - Lee Kong Chian School of Business
University of Oregon
P. Raghavendra Rau
University of Cambridge
Asian Finance Association (AsianFA) 2015 Conference Paper
The extant literature on managerial style posits a linear relation between a CEO’s past experiences and corporate policy. We show that there is a non-monotonic relation between the intensity of CEOs’ early-life exposure to fatal natural disasters and subsequent corporate risk-taking. CEOs who experience fatal disasters without extremely negative consequences appear to be desensitized to risk and lead firms that behave more aggressively. Conversely, CEOs who witnessed the extreme downside potential of fatal disasters behave more conservatively when at the helm of a firm. These results hold across various corporate policies and outcomes including leverage, stock volatility, cash holdings, and acquisitiveness.
Number of Pages in PDF File: 62
Keywords: CEO Behavior, Risk-taking, Formative Experiences, Managerial Style
JEL Classification: G30, G32, G39
Date posted: April 11, 2014 ; Last revised: July 30, 2015
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