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
May 12, 2014
The extant literature on managerial style posits a linear relation between a CEO’s exposure to risk and subsequent corporate policy. We show that there is a non-monotonic relation between CEO’s early-life exposure to natural disasters and risk-taking. Specifically, experiencing natural disasters without extremely negative consequences appears to desensitize CEOs to the negative consequences of risk. However, if a CEO was exposed to "extreme" levels of fatal disasters and experienced the downside potential of risky situations, he or she appears to be more cautious in their approach to risk when at the helm of a firm. These results hold across various corporate policies and outcomes including leverage, stock volatility, cash holdings, acquisitiveness, and CEO compensation structure.
Number of Pages in PDF File: 50
Keywords: CEO behavior, Risk-taking, Formative experiences, Managerial Style
JEL Classification: G30, G32working papers series
Date posted: April 11, 2014 ; Last revised: May 13, 2014
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