The CEO’s personal credit score may reveal more than their financial habits, and it can predict how they make critical business decisions under pressure.
New Ohio State University research shows that executives with secondary credit scores are twice as likely to follow consulting advice, even if those recommendations prove counterproductive. Meanwhile, their colleagues with high-quality credit scores rigorously evaluated external suggestions and adapted to real-world experience.
The study analyzed 303 C-Suite executives from medium-sized companies through controlled experiments that simulate high-risk supply chain decisions. Each executive faces ten rounds of inventory investment options while receiving consulting advice and suffering random business disruptions.
It’s a problem for one person
“Responsible CEOs don’t want to be an executive of ‘yes,’ they want someone to evaluate the data objectively,” said Noah Dormady, associate professor at the John Glen School of Public Affairs and co-author of the study. “That’s the question we asked in this study. Executives with higher credit scores are more likely to think carefully and critically about the data and make objective decisions.”
The experiment allowed executives to decide in reality whether to store inventory as protection against potential disasters such as hurricanes or supply chain disruptions. These decisions involve a large amount of opportunity costs, as excessive inventory connects capital that can be invested in production equipment or labor.
Surprisingly, how the researchers’ credit scores predict decision patterns. Executives with secondary scores (below 680) showed an overall treatment effect of 39% when they accepted the recommendation, while executives with major credit ratings only 20%.
Learn from experience and orders below
This study reveals particularly amazing things about how different executives process information over time. Prime Credit Supervisors adjust their responses based on cumulative experience, while secondary Credit Supervisors maintain compliance with external advice regardless of their accuracy.
By the sixth decision-making period, the likelihood of major disasters with fewer major disasters was 15% lower than that of secondary peers. By the tenth period, this gap widened to 23%, indicating that executives with higher credit scores have increasingly judged external guidance when the recommendations are inconsistent with reality.
“Those with higher FICO scores are more confident in making their own decisions, probably because the financial decisions they make in their personal lives work very well compared to those with lower FICO scores.”
Bottom line impact
These behavioral differences translate into measurable profit changes. When suggestions conflict with actual disaster patterns, the primary credit supervisor always outperforms his secondary colleagues. Profit analysis shows that executives with high-quality credit scores make better decisions, especially during times of high uncertainty, and that complying with recommendations by sub-executives often leads to sub-optimal outcomes.
It is particularly noteworthy that even after nine rounds of evidence contradicted the recommendation, the secondary credit supervisor was following the recommendation. This shows how these executives weigh in on external authority and personal experience.
Beyond personal finance
“This is important because previous research has shown that personal financial habits may extend to professional decision-making,” Choi notes. The study isolated psychological factors that affect credit scores rather than purely finance by focusing specifically on high-income C-suite executives.
Based on established findings, the study predicts various behaviors beyond financial risks, including job performance, health outcomes, and relationship stability. However, the study marks the first time researchers have demonstrated that credit scores can predict how executives handle risk information in a company’s environment.
“Executives with subprime credit are more likely to just postpone designated consultants, or even ignore their life experience,” Dormady observed. “This suggests that executives with lower credit scores are more likely to be the type of decision makers who follow facts.”
Moral considerations
Although the results are statistically powerful, Dormady stresses that using credit scores for performing screening can raise complex ethical issues. Ten states have banned credit checks on most employment decisions, although jobs in the financial industry are generally exempted.
Researchers call for other replicated studies and careful guidance to prevent the abuse of credit score data in hiring decisions. However, they believe that these findings may have special significance with roles involving public safety, emergency management, or critical infrastructure decisions in which the ability to strictly evaluate external information becomes particularly important.
As businesses face increasingly complex supply chain challenges and economic uncertainty, understanding how executives deal with risk information can be critical to the resilience of the organization and the effectiveness of decision-making.
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