Firms with Single CEOs Are Riskier Investments: Study

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Investing in firms run by single chief executives is riskier than investing in companies run by CEOs who are married, says a new study from the National Bureau of Economic Research.

The working paper, entitled, “Status, Marriage, and Managers’ Attitudes to Risk,” finds that single CEOs invest more aggressively in capital expenditures, R&D, advertising and acquisitions, and that their companies exhibit higher stock-return volatility.

“Our research shows that CEOs’ personal life decisions may interact with some of the key decisions they make in managing their firms in an important way,” says Wharton Business School professor Nikolai Roussanov, one of the study's authors.

In general, a firm run by a single CEO invests 10 percent more and the volatility of its stock returns is 3 percent higher, according to the study.

The numbers get more startling when the study takes into account that single CEOs tend to run, on average, smaller and younger firms. Then, investment is 69 percent higher for companies with single CEOs and stock return volatility is 24 percent higher.

The study looked at more than 5,700 chief executives of public companies. Married CEOs accounted for 84 percent of the sample, while single CEOs made up 20 percent.

According to the study, single CEOs take more risks because they need to compete in the marriage market for higher-quality spouses, and that pushes them to take actions that can boost their relative wealth and status.

“If the marginal benefit of an extra dollar of wealth — consisting both of its consumption value and status payoff (i.e., the quality of the marital match) — is large enough, the matching environment creates an incentive for agents to take more idiosyncratic risk than they would in the absence of the status contest,” says the study.

Professor Pavel Savor, co-author of the study, offers Oracle’s Larry Ellison and Microsoft’s Steve Ballmer as examples. “Ellison is famously aggressive in his business affairs and was married and divorced four times. Ballmer is less bold in his role as CEO, or at least perceived to be so, and is still married to his first wife,” says Savor.

According to Savor, the industry with the highest proportion of single CEOs — 23.5 percent — is Computers, Software, and Electronic Equipment. The one with the lowest is Utilities, with 5.1 percent.

Savor cannot say if the finding would hold true for single female executives, because there are very few female CEOs in the sample.

The study authors suggest that their findings may have useful implications in both executive compensation and corporate governance, particularly when it comes to how much influence a CEO has on the company.

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