What doesn't kill you will only make you more risk-loving: Early-life disasters and CEO behavior

Author

Gennaro BERNILE, Singapore Management UniversityFollow
Vineet BHAGWAT, University of Oregon
P. Raghavendra RAU, University of Cambridge

Publication Type

Journal Article

Version

submittedVersion

Publication Date

2-2017

Abstract

The literature on managerial style posits a linear relation between a chief executive officer's (CEOs) past experiences and firm risk. We show that there is a nonmonotonic 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

Discipline

Business | Corporate Finance | Human Resources Management | Strategic Management Policy

Research Areas

Finance

Publication

Journal of Finance

Volume

72

Issue

1

First Page

167

Last Page

206

ISSN

0022-1082

Identifier

10.1111/jofi.12432

Publisher

Wiley

Citation

BERNILE, Gennaro; BHAGWAT, Vineet; and RAU, P. Raghavendra. What doesn't kill you will only make you more risk-loving: Early-life disasters and CEO behavior. (2017). Journal of Finance. 72, (1), 167-206.
Available at: https://ink.library.smu.edu.sg/lkcsb_research/4223

Copyright Owner and License

Authors

Creative Commons License

This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.

Additional URL

https://doi.org/10.1111/jofi.12432