The Cultural Origin of Preferences: CEO Cultural Heritage and Corporate Acquisitions

Does culture shape economic preferences? While economic models of the origins of preferences point to an important role of culture, supporting empirical evidence is largely missing for risk and time preferences. In this study, we exploit variation in cultural heritage across CEOs of public U.S. companies and demonstrate that CEOs’ culturally inherited attitudes towards uncertainty and risk negatively affect corporate acquisitiveness. Conditional on engaging in acquisitions, CEOs from more risk and uncertainty avoiding cultures try to reduce risk by choosing targets with higher diversification potential and by using equity financing. Our findings are robust to genetic, institutional, and economic differences across countries of origin. Most of the social transmission of risk attitudes occurs through national culture rather than religion. Cultural differences with respect to risk preference persist over multiple generations, while there is also evidence consistent with gradual assimilation. JEL classification: