Too scared to make mistakes at home: CEO hometown identity and corporate risk-taking

Jing Chen, Peiwen Hu, Shan Liu and Xinghe Liu

Research in International Business and Finance, 2024, vol. 70, issue PB

Abstract: While prior conceptualizations acknowledge that CEOs’ psychological traits influence firm outcomes, it remains unknown whether and how hometown identity as an important character of CEOs affects corporate risk-taking. Drawn upon place identity theory, our study investigates whether CEO hometown identity mitigates or encourages firms' risk-taking. Using a sample of Chinese listed firms between 2008 and 2020, we show that CEO hometown identity significantly reduces corporate risk-taking, and this finding holds after a battery of robustness checks. Our cross-sectional analyses further reveals that this effect is stronger for female CEOs but weaker for CEOs with international experiences. Additionally, we demonstrate that the reduction in firm risk-taking is achieved through lower financial leverage, enhanced investment efficiency, and reduced earnings management. Collectively, by highlighting the importance of CEO hometown identity, our study furthers the understanding of how CEO psychological traits influence corporate risk-taking.

Keywords: Hometown identity; Risk-taking; Financial leverage; Investment efficiency; Earnings management (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:70:y:2024:i:pb:s0275531924001806

DOI: 10.1016/j.ribaf.2024.102387

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