CEO Relative Age and Corporate Risk-Taking

71 Pages Posted: 7 Jul 2022

See all articles by Junru Guo

Junru Guo

Nankai University

Jia He

Nankai University

Sibo Liu

Hong Kong Baptist University

Yonglin Wang

Lingnan University

Date Written: May 29, 2022

Abstract

We investigate the effect of CEO relative age, an early-life measure defined as age relative to others in the same school cohort determined by the cutoff date policy at primary school entry, on corporate risk-taking. We base our analysis on the arguable randomness of managers’ birth months and a novel data set containing the birth month information of 2,595 CEOs from 1,011 Chinese listed firms. We find that firms with “relatively older” CEOs, i.e., those who were older than their classmates at school entry, compared with firms with “relatively younger” CEOs, have greater volatility in their profitability and stock returns, use debt financing more aggressively, engage in more diversifying and valuedestroying acquisitions, and experience deteriorating performance and higher crash risks. The results are robust to a battery of alternative specifications. Our additional tests suggest that the overconfidence of relatively older CEOs explains our findings.

Keywords: relative age effect, risk-taking, CEO, overconfidence

JEL Classification: G11 G32 G34 G41

Suggested Citation

Guo, Junru and He, Jia and Liu, Sibo and Wang, Yonglin, CEO Relative Age and Corporate Risk-Taking (May 29, 2022). Available at SSRN: https://ssrn.com/abstract=4149073 or http://dx.doi.org/10.2139/ssrn.4149073

Junru Guo

Nankai University ( email )

94 Weijin Road
Tianjin, 300071
China

Jia He (Contact Author)

Nankai University ( email )

94 Weijin Road
Tianjin, 300071
China

Sibo Liu

Hong Kong Baptist University ( email )

Renfrew Road 34
Kowloon Tong
Hong Kong

Yonglin Wang

Lingnan University ( email )

8 Castle Peak Road
Lingnan University
Hong Kong, New Territories
China

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