Managers' Risk Preferences and Firm Investment: The Moderating Role of Early‐Life War Exposure and Firm Size

ABSTRACT We conducted a lab‐in‐the‐field experiment with 623 top managers from textile and garment firms in Vietnam to investigate the nexus of top managers' risk preferences and firm investment. We find that firms led by managers with higher levels of loss aversion tend to have lower investments. The heterogeneity in managers' loss aversion also affects different investment levels of small and medium‐sized enterprises (SMEs) vis‐à‐vis large firms. Interestingly, our findings reveal that managers' loss aversion has a strong link to investment behaviours of firms led by war‐exposed managers, who born and grew up during the American war in Vietnam. However, this pattern does not hold for firms led by their counterparts. This result shows that personal early‐life war exposure may influence managers' investment decisions during their adulthood.