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Early Life Experience and CEOs’ Reactions to the COVID-19

This paper studies how CEOs’ early life experiences of natural disasters affect corporate activities during COVID-19 pandemic in the U.S. We find that following the initial outbreak of COVID-19 in late February 2020 in the U.S., most firms started to cut down capital expenditure (Capex), research and development (R&D) investments, and selling, general and administrative expenses (SG&A). More interestingly, such patterns are significantly more pronounced for CEOs with early life experience of natural disasters than CEOs without such experiences. In the reopening period from the second half of 2020, firms managed by CEOs with early disaster experiences achieved better performance. It is almost impossible to foresee the outbreaks of COVID-19, and it is unlikely to select CEOs with experience of similar infectious disease outbreaks before COVID-19. To further establish the causal effects of CEOs’ early life experience on corporate activities, we find that CEOs who experienced outbreaks of diseases with symptoms or modes of transmission similar to COVID-19 react significantly more strongly (e.g., reductions in Capex, R&D, and SG&A) than CEOs without such experience. Our findings identify the essential role of CEOs in corporate governance, especially the long-run effects of their experience in early life.