Too Scared to Make Mistakes at Home : CEO Hometown Identity and Corporate Risk-Taking

Motivated by the understudied role of CEO psychological characteristics in corporate risk-taking, our study investigates whether CEO hometown identity mitigates or encourages firms' risk-taking. Results from a sample of listed Chinese firms between 2008 and 2020 reveal that CEO hometown identity significantly reduces corporate risk-taking due to hometown CEOs’ local attachment and reputation concern; this finding holds after a battery of robustness checks. Cross-sectional analyses show that the focal relationship is more pronounced for female CEOs, but less so for CEOs with foreign experiences. Further analyses indicate that the decrease in firm risk-taking is realized through reduced financial leverage, improved investment efficiency, and decreased earnings management. By emphasizing the role of CEO hometown identity, our study contributes to a more nuanced understanding of the dynamics of CEO traits in shaping firm risk-taking and provides valuable practical implications for boards to consider CEO psychological traits when designing risk-taking incentives