Marriage and Managers' Attitudes to Risk

Abstract

Marital status can both reflect and affect individual preferences. We explore the impact of marriage on corporate chief executive officers (CEOs) and find that firms run by single CEOs exhibit higher stock return volatility, pursue more aggressive investment policies, and do not respond to changes in idiosyncratic risk. These effects are weaker for older CEOs. Our findings continue to hold when we use variation in divorce laws across states to instrument for CEO marital status, which supports the hypothesis that marriage itself drives choices rather than it just reflecting innate heterogeneity in preferences. We explore various potential explanations for why single CEOs may be less risk averse. ABSTRACTStatus concerns can drive risk-taking behavior by affecting the payoff to a marginal dollar of wealth. If status concerns arise endogenously due to competition in the marriage market, then unmarried individuals should take greater risks. We test this hypothesis by studying corporate CEOs. We find that single CEOs are associated with firms exhibiting higher stock return volatility, pursue more aggressive investment policies, and are not affected by increases in idiosyncratic risk. These effects are weaker for older CEOs. Our results also hold when we use variation in divorce laws across states to instrument for CEO marital status.

Limited attention, marital events and hedge funds

“…For example, relative to managers who have been married multiple times, single managers deliver raw returns that are 31.0 basis points more volatile and abnormal returns that are 28.3 basis points more volatile per month. These results are broadly consistent with Love (2010) and Roussanov and Savor (2014) who find that single men tend to take on more risk than married men. The view is that single fund managers take on greater risk so as to increase their status in the marriage market.…”

Sensation Seeking and Hedge Funds

“…The variables SPORT and MINIVAN may proxy for marital status, which in turn may explain risk (Love (2010) and Roussanov and Savor (2014)). To control for marital status, we first merge our data with marriage and divorce data that are publicly available for 13 states in the United States.…”

“…In our work, we carefully consider several alternative explanations, including reverse causality, sample selection, endogeneity, gender, social status (Piff et al (2012)), peer effects, frugality (Davidson, Dey, and Smith (2015)), marital status (Love (2010) and Roussanov and Savor (2014)), biological age, and skewness preference, and find that each of these possible explanations is unlikely to drive our findings. Still, it is not possible to fully rule out all other stories or mechanisms.…”

Management Characteristics and Corporate Risk-taking: An Overall Review

“…For example, CEOs who experienced the reform and open-up in early adulthood tend to have higher likelihood of risk taking and more risk preference than CEOs who were grow-up in central planning era experienced economic recessions. The personal experience is including the events managers have experienced, such as educational and career background [42]; military background [12]; marital status [43][44][45]; early-life disasters [46]. The literature is somehow for a deficiency of systematic and comprehensive.…”