CEO Private Firm Experience and Idiosyncratic Risk

Abstract

I find that the idiosyncratic risk of firms increases with the extent of CEO work experience in non-publicly traded firms (CEO private experience). While there is no evidence of higher investment risk-taking by Private CEOs, the proportion of private-firm work experience is negatively associated with a well-known index of corporate social responsibility (CSR) and positively associated with an index of firm-level political risk. The extent of CEO private experience contributes to higher idiosyncratic risk potentially due to poor management of political risk and shrinking investment in the CSR performance of the firm consistent with a lack of reputational risk management. Past private-firm work experience may condition CEOs to sidestep discretionary but strategically important investments in reputational and political risk management, evidently exacerbating idiosyncratic risk.

Keywords: CEO Private Experience; Employment Experience; Idiosyncratic Risk; Investments; Political Risk, Corporate Social Responsibility

JEL Classification: G3, M1, Z