Toxic Origins, Toxic Decisions: Biases in CEO Selection

Summary

Toxic Origins, Toxic Decisions: Biases in CEO Selection 90 Pages Posted: 27 May 2025 See all articles by P. Raghavendra RauUniversity of Cambridge; European Corporate Governance Institute (ECGI)National Taiwan University - Department of EconomicsCity University of New York, Baruch College - Zicklin School of Business - Department of Economics and Finance Date Written: May 01, 2025 Abstract We examine how selection bias in CEO promotion amplifies risk-taking, using prenatal exposure to pollution as an exogenous shock to individual risk preferences. CEOs born in future Superfund sites are more likely to be promoted internally, suggesting firms reward observed success without recognizing underlying risk tolerance. These "Superfund CEOs" excel in internal roles but pursue riskier external policies once promoted-leading to greater volatility and weaker performance. Our results suggest firms may systematically mistake luck for skill in promotion decisions, filtering for high-variance risk-takers whose traits only become problematic when decision-making shifts to exposed, irreversible domains. In short, Superfund CEOs display performance with essentially lower mean but higher variance. Keywords: CEO selection, Risk-taking, Superfund, Environmental risk, Developmental toxicity, Fetal origins hypothesis JEL Classification: D22, D90, D91, I10, Q50, Q53 Suggested Citation: Suggested Citation