Do corporate managers believe in luck? Evidence of the Chinese zodiac effect

We study the responses of Chinese public firm chairpersons to their perceptions of bad luck pertaining to the Chinese zodiac year. We find that these perceptions of bad luck increase managers' sense of risk and lead them to increase their corporate cash holdings, even though the actual underlying risk remains unchanged. The effect is temporary and begins at the end of the quarter prior to the commencement of the zodiac year. When the zodiac year has passed, the level of risk perceived decreases and the bias disappears. The distortion between perceived and actual risk is significant, and the increase in cash holdings is both suboptimal and inefficient, in our view. Overall, these managerial reactions to the zodiac year are consistent with theories about belief in luck.