Early-Life Disaster Exposure and the Investment Response to Monetary Policy

We place CEOs' formative experiences at the center of analyzing how firms respond to monetary policy. Specifically, we examine how early-life exposure to natural disasters shapes CEOs’ investment behavior following monetary shocks. CEOs with exposure to moderate natural disasters during their formative years exhibit stronger risk-taking tendencies: they invest more aggressively after expansionary shocks and cut back less during contractionary periods. These effects weaken when the exposure is to extreme disasters, leading to more conservative behavior. The patterns are especially pronounced in financially constrained firms and during periods of elevated monetary uncertainty. We also show that these behavioral predispositions have real consequences: the risk-taking CEOs shaped by moderate exposure to natural disasters face a greater likelihood of forced turnover, suggesting that shareholders may perceive their decisions as excessively risky. This behavioral heterogeneity diminishes when monetary shocks are accompanied by FOMC press conferences, highlighting the role of clear communication in reducing uncertainty and standardizing firm responses.