The nature-nurture debate is centuries old, but it isn’t slowing down. In fact, it has raised itself into a boardroom issue thanks to a behavioural economics study by finance experts at the University of California and Stanford University — which backs up theorists who claim major personal events in the early life of executives affect their debt tolerance as corporate leaders.
Chief executives who served in the Second World War were found to accept more aggressive capital structures than ones who grew up during the Great Depression. The latter appear conditioned to avoid public markets and under-utilize debt. As a result, they tend to “lean excessively on internal finance” even during periods of economic growth and stability. And that means recent macroeconomic shocks to the global financial system could have a much deeper and longer lasting impact that anyone imagines.
As Wall Street economist Robert Brusca noted in a market commentary on Japan, the earthquake disaster is seen as a once-in-a-thousand-year occurrence, or what market watchers call a black swan. But toss in other unexpected events, ranging from uprisings in the Middle East to 2010’s flash crash, and black swans appear to being flying in flocks these days. And that could make future capitalists overly cautious.