The Cultural Origin of CEOs’ Attitudes Towards Uncertainty: Evidence from Corporate Acquisitions

The Cultural Origin of CEOs’ Attitudes Towards Uncertainty: Evidence from Corporate Acquisitions. Yihui Pan, Stephan Siegel & Tracy Yue Wang. University of Utah Working Paper, June 2017, https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2987623

Abstract: We examine how U.S. CEOs’ attitudes towards uncertainty as well as their corporate investment decisions are shaped by their cultural heritage – a potentially important aspect of their upbringing and early life environment. We find that CEOs with a more uncertainty avoiding cultural heritage are less likely to engage in corporate acquisitions. Conditional on making an acquisition, more uncertainty avoiding CEOs prefer targets in industries that they are familiar with and targets that can be integrated more easily. The impact of culturally transmitted uncertainty attitudes on M&A decisions is stronger when CEOs’ parents put more emphasis on the family’s cultural heritage. Finally, cultural differences with respect to uncertainty attitudes persist over multiple generations, but become less pronounced over time. Overall, our results highlight an important role of cultural heritage in shaping decisions under uncertainty by U.S. CEOs as well as of parents in transmitting cultural values, in particular attitudes towards uncertainty, to their children.

Keywords: culture, cultural heritage, uncertainty avoidance, uncertainty aversion, Hofstede, CEO, corporate acquisition, social transmission of preference