Managers’Early-Life Military Service And Corporate Policy

With the rise of Behavioral Corporate Finance theory, some characteristics of managers themselves such as managers’ age, education and psychology, are becoming more and more important in the research of firm’s policy. Although latest literatures indicate that managers’ overconfidence, age and education do have had a significant effect on firm’s policies(such as investment policy, financing policy) since21th century, the early-life experience of the managers, which may model managers’ characteristics or manager’s manner and finally may affect their decision, has rarely been studied. Therefore, on the basic hypothesis of non-rational economic man, this paper attempts to study the relationship between managers’ early-life military’s experience and firm’s policies.In this paper, we select senior managers who has early-life military’s service as research object, on the basis of resset database of Chinese A shares listed company annual financial report from2001to2012,we form the sample in a critical standard using Propensity Score-Matching method, then use Difference-in-Difference method to test whether military experience has an effect on firm’s policy. The writer find three conclusions:First, mangers with early-life military experience show great interest in over-investment, no matter whether free cash flow is abundant. When firm lacks free cash flow, they take efforts to avoid investment deficit; Second, unlike American managers, they avoid affording high-level debt; Third, internal funds is the main resource to meet its investment policy, therefore they show a strong ability to improve firm’s performance and their financial report’s quality is high.This paper has following contributions:First, this paper is the first study on the relationship between manager’s early-life military service and firm policies in China, which would enrich the research field about managerial characteristic on corporate policy; Second, this paper uses a rigorous method in empirical study. We adopt Propensity Score-Matching method to eliminate the effect of confounding variables, then adopt Difference-in-Difference method to strictly measure the real effect of early-life military service.