How Early Trauma Shapes CEO Risk Appetite for Public Debt Versus Bank Debt

Abstract

This study examines the impact of CEOs’ early disaster experiences on the choice of debt structure. We find that firms led by CEOs who have endured disasters are more inclined to shift from bank debt to public debt. This evidence remains robust across various alternative measures, empirical specifications, and identification tests aimed at mitigating endogeneity. The effect of CEOs’ early disaster experiences is more pronounced under specific institutional conditions. The effect strengthens with stricter regulatory oversight and lower unemployment risk, suggesting that institutional environments shape how personal experiences manifest in financial decisions. Overall, these findings suggest that the CEOs' inclination, shaped by early disasters, to take additional risk and seek greater autonomy, can have significant effects on corporate debt structure.