Are executive credit scores a window into corporate behaviour?

• Organisations may find merit in considering the personal credit profiles of executives as one indicator of their propensity for critical evaluation and prudent risk management.
• While credit scores should not be the sole determinant of hiring or promotion decisions, awareness of this correlation could enhance the selection and development of leaders equipped to navigate complex corporate challenges with acuity and responsibility.

Research from The Ohio State University offers compelling insights into how the personal financial habits of top-level corporate executives correlate with their professional decision-making styles—particularly in situations involving risk assessment.

The study found that an executive’s credit score, a measure traditionally used to evaluate individual financial responsibility, can also serve as a predictor of their critical thinking and risk evaluation tendencies within a corporate environment.

The investigation involved 303 high-ranking executives, commonly referred to as C-suite executives, drawn from middle-market firms with annual revenues ranging from $10 million to $1 billion.

The executives self-reported their FICO scores, a credit scoring system heavily influenced by payment history and outstanding debt—factors that typically reflect financial prudence.

Importantly, because all participants held executive-level positions, income levels across the sample were relatively homogeneous, ensuring that income was not a confounding variable.

Key findings

Participants engaged in a controlled experimental simulation requiring them to make investment recommendations regarding inventory stockpiling—a decision deeply rooted in risk management.

Inventories can serve as a protective buffer against catastrophic disruptions such as natural disasters; however, they also come with opportunity costs that can detract from other productive resources within a company.

Over ten decision-making periods, each with two rounds, executives received advice from an advisory group appointed by the fictional CEO.

The advice, which could either advocate for or against investment in additional inventory, was designed to test how participants assimilated external guidance relative to their own experiences, which included varying likelihoods of catastrophes occurring.

The key finding from the research revealed a stark contrast between executives with subprime credit scores and those with prime scores. Executives with subprime scores tended to be “yes persons,” frequently accepting advisory recommendations even when such acceptance conflicted with their experiential judgments, sometimes to the detriment of effective risk management.

Conversely, executives with prime credit scores demonstrated a much more discerning approach.

Objective evaluation

They critically evaluated external information and only aligned their decisions with advisers’ recommendations when those recommendations were substantiated by their own empirical experiences within the simulation. This group exhibited a greater propensity to reject advice that did not accord with reality as they encountered it.

These findings bear significant implications for corporate governance and leadership development. As Noah Dormady, co-author of the study and associate professor at The Ohio State University’s John Glenn College of Public Affairs, emphasises, companies benefit from executives who are capable of objective evaluation rather than blind acquiescence.

“Critical thinking and analytic rigour in risk decision-making are essential qualities in executives responsible for steering firms through uncertainty and volatility.”

Moreover, this study underscores how personal financial responsibility, as reflected in credit scores, may extend beyond private life and influence professional conduct—particularly in domains where risk tolerance is pivotal.

Decision makers

The research aligns with prior studies that link personal financial management habits to broader decision-making behaviours, suggesting that personal and professional risk attitudes are intertwined.

“Those with higher FICO scores were more confident to make their own decisions, possibly because the financial decisions they made in their personal lives worked out well, compared to those with lower FICO scores,” Yisen Choi, a doctoral student in the Glenn College.

In fact, executives with subprime credit scores were about twice as likely to follow the advice of advisers, even when it was inaccurate, when compared to those with prime credit.

“Executives with subprime credit were more likely to simply defer to the appointed advisors, even disregarding their lived experience,” Dormady said.

“That suggests executives with lower credit scores are more likely to be the type of decision maker who follows consensus over fact.”

The researchers noted that they took into account a variety of demographic and other factors about the executives in the study, including gender, veteran status and other personal details. But it was the FICO score that was most meaningful when it came to how they responded to risk in the scenarios.

Given the strong results in this study, does that mean companies should use FICO scores to screen candidates for top executive positions? Dormady said that is a complex question that raises ethical issues.

More replication studies should be done to confirm the results, he said, and guidelines are needed to ensure that credit score data is not misused or abused.