“I Do”: Does Marital Status Affect How Much CEOs “Do”?

Date01 February 2015
Published date01 February 2015
The Financial Review 50 (2015) 57–87
“I Do”: Does Marital Status Affect How
Much CEOs “Do”?
Gina Nicolosi
Northern Illinois University
Adam S. Yore
University of Missouri
This paper explores whether a CEO’s marital status revealsunobservable risk preferences
which influence their firm’s investment and compensation policies. Using biographical data
for CEOs of large domestic companies, we find that corporate deal-making activity (e.g.,
mergers,joint ventures, major capital expenditures, etc.) and overall firm riskiness both increase
significantly with personal life restructuring (e.g., marriages and divorces). This relation is
supported by an instrumental variables analysis and also an investigation surrounding CEO
turnover. Finally, the link between a CEO’s marital status and preference for option-based
compensation further suggests that personal restructuring may be an indicator of executiverisk
Keywords: managerial biases, marriage, divorce, corporate deal-making activities, manage-
rial effort, firm risk, CEO stock options
JEL Classifications: D22, G32, G34
Corresponding author: Department of Finance, Northern Illinois University, 1425 W. Lincoln Hwy,
DeKalb, IL 60115; Phone: (815) 753-6391; E-mail: gnicolos@niu.edu.
We are appreciative of helpful comments and suggestions of the conference participants at the 2012
annual meeting of the Academy of Behavioral Finance and Economics and the 2013 annual meeting of
the Southern Finance Association, the seminar participants at Northern Illinois University,Brandon Cline,
Jacqueline Garner, Marc Simpson, Maria Strydom, the editor (Bonnie Van Ness), and two anonymous
referees. All errors and omissions are our own.
C2015 The Eastern Finance Association 57
58 G. Nicolosi and A. S. Yore/The FinancialReview 50 (2015) 57–87
1. Introduction
There is a long tradition of research in finance that shows the importance of
the top management team for generating shareholder wealth (Jensen and Meck-
ling, 1976; Adams, Almeida and Ferreira, 2005; Fahlenbrach, 2009). While much of
the literature focuses on compensation contracts or governance structures designed
to incentivize or monitor, more recent work focuses on personal characteristics or
behavioral biases of top executives and how these biases influence corporate activ-
ity (Heaton, 2002; Malmendier and Tate, 2005; Kaplan, Klevanov and Sorenson,
2012). Several authors have shown that the level of executive risk aversion is impor-
tant for determining corporate policies and firm value (Coles, Daniel and Naveen,
2006; Low, 2009). While executive behavior that appears either excessively risk
averse or risk seeking can be detrimental, research has shown that CEOs with pref-
erences approaching risk neutrality can be value increasing (Treynor and Black,
1976; Liu and Taffler, 2008; Gervais, Heaton and Odean, 2011). Although existing
research demonstrates that boards elicit risky behavior through incentive contracts
(Core and Guay, 1999), little work exists on signals of unobservable managerial risk
We question whether observable marital status is an indicator of executive risk
aversion and examine its relation, if any, with corporate deal-making activity. We
hypothesize that CEO marital states may be indicative of risk preferences and a will-
ingness to initiate bold strategic changes. We utilize biographical data to categorize
the CEOs of Standard & Poor’s (S&P) 1500 firms by their ultimate (i.e., eventual)
marital state. We define CEOs who have never been married or divorced as having
experienced zero personal restructurings; CEOs who are identified as being married
at some point have experienced at least one personal restructuring; CEOs who are
identified as being divorced at some point have experienced at least two personal
restructurings (i.e., the marriage and then the subsequent divorce).1
We find that variations in CEO marital states suggest differences in executives’
preferences with regard to corporate policy.Considering corporate deal-making activ-
ity (e.g., mergers, joint ventures, major hiring programs, divestitures, capital restruc-
turings, etc.) as a proxy for the willingness to implement bold strategic initiatives,
we find that firm activity is increasing with CEOs’ ultimate marital states. Param-
eter estimates imply that moving from single to married or married to divorced is
associated with a 1.8–3.8% increase in the likelihood that the company will engage
in a major corporate activity. This relation is reaffirmed in an instrumental variables
analysis which accounts for endogenous CEO selection and in an event study con-
sidering leadership turnover that shifts between CEOs of differing ultimate marital
1Arguably, other relationship statuses (e.g., extramarital affairs, polygamous marriages, etc.) might also
affect corporate behavior.We view these arrangements as exceptional and worthy of individual study, but
beyond the scope of our current analysis. Cline, Walkling and Yore (2014) show how these executive life
choices, among others, affect corporate policies.

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