Kolloquium: Hazed and Confused - The Effect of Inadvertent 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—among 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 policies that do not yield higher returns, adversely affecting firm performance and the CEO’s career longevity. Our paper contributes to the understanding of how exogeneous environmental factors can have long-term effects on decision-making at the highest levels of corporate governance.