Does CEOs’ Overseas Experience Promote Corporate Risk-Taking

Abstract

This study conducts a comprehensive analysis of the significant role played by senior executives with international experience in shaping the strategic decision-making processes within corporations, particularly focusing on their impact on corporate risk-taking behaviors. The investigation utilizes a robust dataset from Chinese A-share listed companies spanning 2008 to 2021, examining the relationship between executives’ global backgrounds and the extent of risk undertaken by firms. The findings indicate a strong correlation, highlighting that international experience among executives notably intensifies corporate risk-taking, primarily manifested through increased investments in research and development. Furthermore, the study delves into the mechanisms of this influence, exploring the role of executive decision-making within the context of the corporate governance environment. It is observed that the increase in risk is significantly more pronounced in scenarios where executives possess greater discretionary power, especially in companies with a merged CEO and chairman role and in state-owned enterprises. To address potential endogeneity issues, a two-stage least squares estimation method is employed. Additionally, a system dynamic generalized method of moments method (DSGMM) of moments is utilized to analyze the temporal patterns of risk-taking, revealing a consistent trend across corporations. Moreover, the research integrates a robust methodological framework, combining Propensity Score Matching (PSM) with multi-period Difference-in-Differences (MDID) analysis. This methodology is pivotal in examining variations in corporate risk pre- and post-executive transition, providing a comprehensive and direct examination of the causal link between executives’ international experience and their propensity for corporate risk-taking. The insights from this study are expected to significantly contribute to the understanding of how executive international exposure and the broader corporate governance context impact corporate risk management strategies. These findings offer valuable implications for refining corporate governance and aligning human capital strategies more effectively with evolving business environments.