Bearing an imprint: CEOs' early-life experience of the Great Chinese Famine and stock price crash risk |
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| Institution: | 1. School of Business, Renmin University of China, Beijing 100872, China;2. School of Public Finance, Central University of Finance and Economics, Beijing 100081, China;3. Department of Accounting, University of Melbourne, Melbourne, VIC 3010, Australia;4. Gordon Ford College of Business, Western Kentucky University, Bowling Green, KY 42101, Kentucky, United States;1. School of Economics and Management, Inner Mongolia University of Technology, Huhhot, China;2. Business School, Hunan University, Changsha, China;3. Gordon Ford College of Business, Western Kentucky University, Bowling Green, KY |
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| Abstract: | We propose and test whether adverse life events experienced by CEOs are associated with firms' stock price crash risk. Based on a large sample of Chinese companies from 2000 to 2015, we find evidence that companies whose CEOs experienced the Great Chinese Famine in early life have lower stock price crash risk than those with CEOs who did not experience the famine. Further, the negative association between famine experience and crash risk is more pronounced for firms whose CEOs have greater decision-making powers and for non-State-owned enterprises. We also find direct links between famine experience and various factors that have already been documented as determinants of crash risk. Our results support behavior economics theory on imprinting: CEO memories of adverse life experiences have an indelible effect on their decision-making processes, which in turn influence how the financial information is provided and disclosed to the stock market. |
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