Tainted beginnings, risky endings: The effect of inadvertent prenatal pollution exposure on CEO risk-taking

Abstract

We investigate the influence of prenatal exposure to toxic environments on CEOs’ risk-taking behavior, specifically focusing on CEOs born in areas later designated as Superfund sites — the most hazardous waste sites in the U.S. Previous literature has explored how CEOs’ early-life experiences shape corporate policies, but these studies typically face selection bias issues. Our study addresses this gap by examining an exogenous factor—pollution—that likely affects CEO risk preferences without being influenced by parental or CEO choices. We find that firms managed by these Superfund CEOs exhibit riskier financial and investment policies that do not yield higher returns, adversely affecting firm performance and the CEO’s career longevity on average. Additionally, Superfund CEOs are more likely to be promoted internally, suggesting that their risk-taking tendencies become evident only after reaching top executive positions. Our paper contributes to understanding how exogenous environmental factors can have long-term effects on decision-making at the highest levels of corporate governance.

Keywords: Superfund, Environmental risk, Developmental toxicity, Fetal origins hypothesis, Risk-taking

JEL Classification: D22, D90, D91, I10, Q50, Q53