The Effects of Prior Shocks on Managerial Risk Taking: Evidence from Italian Professional Soccer

A growing empirical literature documents that managerial risk taking is linked to an individual’s history of relevant shocks. Using male soccer data on 32 teams and 2160 matches covering eight seasons of the Italian premier league (“Serie A”), we provide clean evidence that change in managerial risk taking – proxied by a team coach’s decision to alter the initial system of play in a match – significantly depends on having experienced wins or defeats in the recent past. In particular, we show that prior shocks matter, as change in risk taking strongly and positively depends on prior defeats. Single defeats and heavy defeats make the coaches more risk seeking (opting for more offensive systems of play). In contrast, passing through multiple defeats in a row and experiencing single wins are associated with more cautious risk-taking behavior. Changing risk taking, though, does not seem to pay off in terms of match outcomes. Finally, we interestingly document that in top teams managerial risk taking is not sensitive at all to prior shocks, regardless of their positive or negative direction.