Abstract
Understanding the behavior of chief executive officers (CEOs) enables investors, regulators, and others to better appreciate CEOs' corporate decisions. Among the many aspects that determine CEO behavior are early-life experiences, we examine whether a CEO's exposure to two important events—fatal natural disasters and violent crime—during the individual's formative years is associated with the firm's financial reporting outcomes. We argue that a CEO with early life exposure to fatal natural disasters and violent crime may be over-confident when dealing with risk and is more likely to make riskier decisions. However, this relationship becomes negative when the exposure reaches a certain level, consistent with the CEO becoming risk-averse when making business decisions (Bernile, Bhagwat, & Rau, 2017). Consistently, we report evidence of a U-shaped association between financial reporting quality and both types of early-life exposures. In addition, we find that the link between a CEO's early-life exposures and financial reporting quality is more pronounced in firms with greater incentives to manage earnings.
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