We examine two sources of financial synergies — coinsurance effects and asset liquidity — in mergers and test whether financial synergy is greater in conglomerate mergers than horizontal mergers. We find that a reduction in cash flow volatility for consolidated firms helps enhance shareholder value. Consistent with theoretical predictions of earlier studies, our results indicate that a merger can increase shareholder value when the cash flow volatility of the consolidated firm is less than the current cash flow volatility of the acquiring firm. We present new evidence that the source of financial synergies in conglomerate mergers comes mainly from higher asset liquidity. Our test results also suggest that liquidation values are higher in conglomerate mergers than horizontal mergers holding the coinsurance effect constant, particularly when the target is financially constrained.

We examine the impact of CEO marital status on firm innovative efficiency. We find that firms led by married CEOs produce 8% more patents and citations per unit of investment and generate more explorative patents. Married CEOs create a culture of tolerance among their employees that is conducive to risk taking, and their firms produce more efficient innovation (1) in regions that value social capital and (2) in firms that value favorable employee treatment. We find that the tolerant culture of married CEO firms produces more efficient innovation when occurring in tandem with mechanisms facilitating a long‐term strategic orientation.

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