CEO hometown political influences and corporate investment

Andrew Joseph Schwartz

International Journal of Managerial Finance, 2025, vol. 21, issue 5, 1370-1413

Abstract: PurposeI examine how CEOs' early childhood experiences impact firm behavior. In particular, I explore the relationship between the political leanings of a company's CEO's hometown and corporate investment decisions under various political environments.Design/methodology/approachI use data on CEO birthplace to calculate the political leanings of the CEO's birthplace. I then use this data to construct a novel variable, the hometown political support index (HPSI), which measures the alignment between the CEO's hometown and the current president. With HPSI as the main variable of interest, I conduct panel regressions to understand how hometown political support for the current president influences investment-cash flow sensitivities at the CEO's company.FindingsHigh HPSI scores predict higher investment-cash flow sensitivities. This increase is primarily driven by CEOs raised during periods of strong economic growth. Consistent with existing models on attitudes and investment-cash flow sensitivities, this increase in investment-cash flow sensitivities implies CEOs develop positive beliefs about the political environment based on the political beliefs of their hometown.Originality/value This study adds to the growing literature that demonstrates how a CEO's early experiences can play an important role in shaping corporate financial decision-making. To the best of the author’s knowledge, this paper is the first to explore the intersection of early childhood experiences, the political environment and corporate investment behavior.

Keywords: CEO behavior; Belief formation; Corporate investment; Investment-cash flow sensitivities; Politics and corporate behavior (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eme:ijmfpp:ijmf-02-2025-0074

DOI: 10.1108/IJMF-02-2025-0074

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