Superstitious CEO and Corporate Misconduct: Evidence From China

Abstract

Using a Chinese dataset that spans from 2007 through 2019, we examine how superstitious beliefs shape managerial behavior, as reflected in corporate misconduct. In traditional Chinese culture, a person’s zodiac year, which recurs every 12 years, is widely believed to bring bad luck to the person. We exploit this individual-specific, time-varying belief to study changes in CEOs’ risk-related behavior. After controlling for CEO fixed effects, we find that corporate misconduct is significantly less likely during CEOs’ zodiac years compared to their non-zodiac years. This outcome suggests that heightened risk perceptions during zodiac years, which are driven by superstition, deter CEOs from engaging in fraudulent behavior. The effect is more pronounced for CEOs who are more exposed to traditional Chinese culture, when detection risk is higher, and in firms with weaker monitoring, presumably because in such cases, individual beliefs are more likely to influence decisions. Our findings offer novel evidence that cultural superstition, which is often considered irrational, can have a meaningful effect on managerial decisions and corporate outcomes.