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

80 Pages Posted: 11 Apr 2014 Last revised: 1 Oct 2015

Gennaro Bernile

University of Miami - School of Business Administration

Vineet Bhagwat

University of Oregon

P. Raghavendra Rau

University of Cambridge

Multiple version iconThere are 2 versions of this paper

Date Written: September 1, 2015

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’ early-life 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.

Keywords: CEO Formative Experiences, CEO Behavior, Risk-taking, Managerial Style

JEL Classification: G30, G32, G39

Suggested Citation

Bernile, Gennaro and Bhagwat, Vineet and Rau, P. Raghavendra, What Doesn't Kill You Will Only Make You More Risk-Loving: Early-Life Disasters and CEO Behavior (September 1, 2015). Available at SSRN: https://ssrn.com/abstract=2423044 or http://dx.doi.org/10.2139/ssrn.2423044

Gennaro Bernile

University of Miami - School of Business Administration ( email )

5250 University Dr
Coral Gables, FL 33146
United States

Vineet Bhagwat (Contact Author)

University of Oregon ( email )

Lundquist College of Business
1208 University of Oregon
Eugene, OR 97403
United States

P. Raghavendra Rau

University of Cambridge ( email )

Cambridge Judge Business School
Trumpington Street
Cambridge, Cambridgeshire CB21AG
United Kingdom
3103626793 (Phone)

HOME PAGE: http://www.raghurau.com/

Paper statistics

Downloads
2,777
Rank
2,555
Abstract Views
18,061