Toxic Origins, Toxic Decisions: Biases in CEO Selection

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.