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Do managers’ personal traits matter? A burgeoning recent literature provides ample evidence that indi- vidual chief executive officer (CEO) characteristics impact corporate policies. One of the key dimensions of heterogeneity across individuals is differential attitudes toward risk. Such heterogeneity can have important real consequences insofar as it drives corporate invest- ment and research and development (R&D) activities. In this paper, we explore whether risk attitudes across CEOs reflect only innate differences in preferences or whether factors external to the firm also play a role. More specifically, we investigate the impact of CEO marital status on corporate risk taking.
We explore this question using a standard sample of
U.S. public firms, which we augment with a new data set on marital status of CEOs that we compile from a variety of public sources. We find that companies run by CEOs classified as single in our data set exhibit higher levels of stock return volatility and pursue more aggressive investment policies than otherwise comparable firms, consistent with the hypothesis of greater risk taking by single managers. These effects are both economically and statistically quite meaningful. A firm headed by a single CEO, controlling for a variety of personal and firm characteristics, exhibits stock return volatility that is 3% higher and invests 10% more on average.
The difference in volatilities is driven by varying exposures to idiosyncratic rather than systematic risk. The investment policies vary with marital status for capital expenditures, as well as R&D spending and
acquisitions, which are commonly associated with risk taking. There is also some evidence that firm leverage is higher for firms with single CEOs. The effect of marital status is weaker for older managers, indicating that selection into marriage based on an unobserved personal characteristic that is correlated with risk taking is an unlikely driver of our results. This is because such a selection effect would suggest the opposite pattern: if the propensity to get married varies across people, those for whom this propensity is low will likely be overrepresented among single individuals at older ages.
Importantly, we control for firm characteristics in our analysis, so that our findings do not simply reflect the tendency of single CEOs to be matched with riskier firms. If we omit firm controls, the relationship between marital status and risk taking becomes significantly stronger (coefficients typically increase by a factor of five), suggesting that single CEOs indeed are more likely to run relatively risky firms.1 Furthermore, we demonstrate that single CEOs impact firm investment decisions by exploiting within-firm variation in idiosyn- cratic return volatility over time. We show that whereas married CEOs reduce investment in response to an increase in idiosyncratic risk (consistent with Panousi and Papanikolaou 2012), those CEOs who are single
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