How Chief Executive Officers’ first-hand experience of the Great Chinese Famine affects risk-taking?

Abstract

To understand the influence of Chief Executive Officers’ (CEOs) early life experiences on their firms’ strategic decision-making, here we explore the impacts of CEOs’ experience of the Great Chinese Famine (1959–1961) on their cognitions and firm risk-taking. Using longitudinal data from publicly listed companies in China from 2006 to 2017, we found that CEOs who experienced the 3-year-long famine are more risk-averse, but that this relationship only exists among CEOs who experienced the famine during their formative years (between 6 and 18 years old). In addition, we found that the negative relationship between CEOs’ early experiences of famine and firms’ risk-taking is weaker when the firm is state-owned and stronger when the firm is facing fiercely competitive markets. We also take a step further to explore the impact of the severity of the famine on individuals, and we find that there is a positive relationship between the severity of the famine and firm risk-taking only within a moderate level. When the severity exceeds a certain level, CEOs are reluctant to take risks with the increase in the severity of the famine. Our findings provide a new theoretical and practical perspective in studying the relationship between CEOs’ early experiences with disaster and firm risk-taking.