CEOs who survived childhood disasters take bigger risks with debt

CEOs who lived through natural disasters as youngsters are significantly more likely to favour public debt over bank loans, according to new research involving the University of Essex.

The study found that firms led by these trauma-experienced CEOs hold, on average, 13.6% more public debt and 19.3% less bank debt than their peers.

The shift is driven by a preference for autonomy and a reduced tolerance for external monitoring – traits linked to early exposure to life-threatening uncertainty.

The researchers manually tracked the early-life experiences of more than 2,000 US-born CEOs, cross-referencing disaster records with biographical data and corporate debt structures.

Natural disasters included earthquakes, volcanic eruptions, tsunamis, hurricanes, tornadoes, severe storms, floods, landslides, extreme temperatures and wildfires.

Co-author of the study, Dr Yiwei Li from Essex Business School, said: "Our research reveals how deeply personal experiences can shape corporate financial strategies in ways that affect multiple stakeholders.

“We found that CEOs who experienced natural disasters during their formative years tend to prefer public debt over bank debt, likely seeking greater operational flexibility.

“This highlights the importance of understanding how executives' backgrounds influence decision-making that impacts shareholders, creditors, and other stakeholders."

The research, which also involved academics from Vlerick Business School, Sichuan Agricultural University and the University of Nottingham, found that despite 11.7% of CEOs in the study being exposed to a disaster – they drove statistically significant changes in firm debt structure, opting for public markets over monitored loans.

CEOs who endured more severe disasters showed the biggest tilt toward public debt.

Professor Thanos Verousis, of Vlerick Business School, and co-author of the study added: “Higher risk typically demands more external financing and invites tighter monitoring from creditors.

“CEOs aware of this trade-off may strategically opt for public debt precisely because it enables greater capital access while avoiding the intense scrutiny and control that come with bank loans. CEOs shaped by early-life disasters appear to value independence over oversight, often in ways that align with risk-seeking behaviour and short-term opportunity maximisation.”

The study, published in journal The Financial Review, points to broader questions about how personal experiences shape financial decision-making – and what that means for corporate governance.