Management’s superstition and company risk: Evidence from the Chinese zodiac year belief

<p dir="ltr">Many Chinese superstitiously believe zodiac signs affect luck, especially during one's zodiac year when misfortune is thought more likely. We examine how this zodiac year superstition affects companies' attitudes toward risk using textual analysis. Company risk attitudes are quantified by the frequency of words associated with “risk” in the management discussion and analysis (MD&A) section of company annual reports. We also analyze company's boards to determine the proportion of board members in their respective zodiac years. Our findings indicate a negative correlation between the frequency of risk-related words and the proportion of board members in their zodiac years, suggesting that companies' directors tend to avoid talking about risk due to the perception of bad luck in the zodiac year. Board zodiac year exposure is also associated with lower R&D investment, reduced information transparency, and higher degree of operating leverage (DOL). The effect is stronger for boards with more men and lower educational attainment, for smaller firms, and for private (vs. state-owned) firms.</p>