How Chief Executive Officers' first-hand experience of the Great Chinese Famine affects risk-taking?

The study investigates whether CEOs’ first-hand exposure to the Great Chinese Famine (1959–1961) during formative years (ages 6–18) imprints lasting risk preferences that influence firm risk-taking. Grounded in upper echelons theory and imprinting theory, the authors hypothesize that famine survivors carry an imprint of resource scarcity, leading to higher saving propensity and conservatism in resource-intensive decisions, thereby reducing firms’ willingness to take risks. They further propose boundary conditions based on China’s dual institutional logics—state ownership (state logic) and market competition (market logic)—and examine how famine severity shapes the imprint. Four hypotheses are tested: H1, famine experience in formative years reduces firm risk-taking; H2, this negative relationship is weaker in state-owned firms; H3, it is stronger under intense market competition; H4, famine severity relates to firm risk-taking in an inverted U-shape among famine-experienced CEOs.

The paper builds on upper echelons theory (top managers’ characteristics shape strategic choices) and imprinting theory (sensitive-period experiences leave enduring effects despite later environmental changes). Prior work documents that early-life traumas and macroeconomic shocks influence adult risk preferences and managerial behaviors; famine survivors display altered health, education, and economic outcomes, and CEOs’ disaster experiences can affect policies such as cash holdings, acquisitions, and accounting conservatism. Neuroscience and epigenetics research supports long-term effects of adverse events on cognition and behavior. The authors position the Great Chinese Famine as a nationwide traumatic event likely to imprint resource-scarcity mindsets on those aged 6–18 during the famine, predicting greater saving, caution in resource-intensive projects, and lower firm risk-taking. They extend literature by considering institutional contingencies (state vs. market logic) that may strengthen or erode imprints, and by theorizing a non-linear effect of famine severity (inverted U) on risk-taking.

Data: All A-share Chinese listed firms from 2006–2017. Financial/firm data from CSMAR; CEO origin and demographics from resumes, company websites, and public web sources. Exclusions: financial industry firms, specially treated (ST) firms, firms with missing CEO information. After cleaning, 14,555 firm-year observations (2,163 firms). Analyses requiring CEO birthplace/severity have fewer observations (final severity sample: 6,451 firm-year observations). All continuous variables winsorized at 1% tails. Dependent variable: Firm risk-taking measured as the standard deviation of daily stock returns (excluding dividends), annualized by multiplying by sqrt(250), capturing total (firm-specific plus market) risk. Key independent variables: (1) CEO early-life famine experience: indicator=1 if CEO born 1942–1954 (age 6–18 during 1959–1961), else 0. (2) Famine severity: provincial excess death rate in 1960 minus average death rate 1955–1958 (by CEO birthplace). (3) State ownership: 1 if government holds shares, else 0. (4) Market competition: 1/HHI (Herfindahl–Hirschman Index) at industry level; higher values indicate greater competition. Controls: CEO age, gender (1=male), education (bachelor+), CEO-chair duality, ROA, ownership concentration (top shareholder’s share), firm size (ln employees), slack (1 / debt-to-asset), TMT famine experience (share of TMT born 1942–1954), and provincial Marketisation Index (MI). Fixed effects: firm FE (selected via Hausman test p=0.000), year FE, industry FE. To mitigate endogeneity, independent, moderator, and control variables measured at year t, dependent variable at t+1. For severity models, also include birthplace fixed effects (most severely impacted provinces) and birth-status fixed effects (born when famine began). Estimation: Panel fixed-effects regressions with robust standard errors. Interactions test moderation by state ownership and market competition. Curvilinear effect of severity tested by including severity and severity^2; plotted inverted U relationship; extremum verified to lie within observed range. Robustness and endogeneity checks: (a) Alternative dependent variables: R&D intensity (R&D/operating income) and internationalization (overseas business share); results consistent. (b) Alternative famine exposure measure: cohorts—coh1 (1955–1961 infancy/early childhood), coh2 (1942–1954 childhood/adolescence), coh3 (≤1941 adulthood); only coh2 significant. (c) Propensity score matching (1:10 nearest neighbor) on CEO age, gender, ROA, concentration, size, slack, market competition; ATT significant; re-estimation confirms main and moderating effects. (d) Instrumental variables: province-level number of people’s communes in 1959 as IV for famine severity; first-stage strong (F=26.66), second-stage shows significant negative effect consistent with main findings.

• H1 supported: CEOs with early-life famine experience (born 1942–1954) lead firms with lower risk-taking. In FE regression, coefficient ≈ -0.010 (p≈0.082); economically, about 2.02% lower risk relative to mean risk-taking (0.496). Robustness with PSM shows stronger negative coefficients (e.g., -0.055*** in matched sample).
• H2 supported: State ownership weakens the negative relationship between famine experience and risk-taking. Interaction of famine experience × state ownership is positive/significant in main models and PSM; graphical plots show a less negative slope under high state ownership.
• H3 supported: Market competition strengthens the negative relationship. Interaction famine experience × market competition is negative and significant (e.g., β≈ -0.022, p≈0.042), with a more negative slope in highly competitive markets.
• H4 supported: Among famine-experienced CEOs, famine severity relates to firm risk-taking in an inverted U-shape: risk-taking increases with severity up to a point and then decreases as severity continues to rise. The quadratic term is negative and significant; the turning point lies within the observed severity range.
• Robustness: Results hold using alternative risk-taking measures (R&D intensity, internationalization) and alternative famine exposure cohorts, with significant effects concentrated in the childhood/adolescence cohort (ages 6–18 at famine). PSM and IV analyses corroborate causal interpretation.

Findings align with imprinting and upper echelons theories: severe early-life scarcity imprints a persistent resource-conservation mindset that manifests as lower firm risk-taking when those individuals become CEOs. The effect is context-dependent: in environments congruent with the imprint (high market competition with scarce resources), risk aversion is amplified; in environments offering abundant non-market resources (state ownership), the imprint’s influence is attenuated. The demonstrated inverted U-shaped relation between severity and risk-taking nuances prior linear assumptions: moderate adversity may embolden risk-taking through increased confidence or experience, while extreme adversity accentuates loss aversion and precautionary saving motives, reducing risk-taking. These insights illuminate when and how early-life trauma translates into strategic choices, informing both theory (imprint persistence/decay under environmental fit) and practice (executive selection and governance under varying institutional logics).

The study shows that CEOs who experienced the Great Chinese Famine during formative years are more risk-averse, reducing firm risk-taking; this effect is weaker in state-owned firms and stronger under intense market competition. Famine severity exerts a non-linear (inverted U) influence on risk-taking among famine-experienced CEOs. Contributions include: extending CEO early-life experience research by identifying a curvilinear severity effect; enriching imprinting theory by highlighting historic disasters as imprint sources and demonstrating imprint persistence/decay under environmental fit; and advancing firm risk-taking literature by tracing executive preferences to formative experiences. Future research should test causality more directly (e.g., experiments or quasi-experiments), broaden samples to include unlisted firms and other contexts, and examine other strategic outcomes (M&A, innovation, CSR) affected by famine-imprinted CEOs.

• Causal identification challenge: difficult to fully disentangle whether famine experience caused conservatism or whether naturally conservative individuals survived and later became CEOs; IV and PSM mitigate but do not eliminate concerns.
• Sample scope: listed Chinese firms (2006–2017) only; generalizability to unlisted firms, other time periods, or countries may be limited.
• Outcome scope: focuses on risk-taking; other strategic domains (M&A, innovation, CSR) not analyzed here.
• Data constraints: substantial missing CEO birthplace data for severity analyses reduced sample size; potential measurement error in historical severity proxies (excess death rates).