The Early-life Political Event Experience of the Chair of the Board and the Firm's Innovation Decision

Abstract

Early life experience may influence an executive's psychology and behaviour, which affects the company's financial policy. Using a unique early life political event, this paper finds that the ‘Down to the Countryside’ experience of board chairs in China increases their risk aversion and reduces the firms’ innovation investments. Such an effect is robust to a series of alternative tests. Further analysis shows that this impact is not weakened by chairs’ higher education, and their increased risk aversion results in the chairs being more prudent and making more efficient investment decisions.