Status, Marriage, and Managers’ Attitudes to Risk
Nikolai L. Roussanov
University of Pennsylvania - The Wharton School; National Bureau of Economic Research (NBER)
Pavel G. Savor
University of Pennsylvania - Finance Department
December 14, 2012
AFA 2013 San Diego Meetings Paper
Relative wealth concerns can affect risk-taking behavior, as the payoff to a marginal dollar of wealth depends on the wealth of others. We develop a model where status concerns arise endogenously due to competition in the marriage market and lead to greater risk-taking for unmarried individuals.We evaluate empirically the importance of this effect in a high-stakes setting by studying corporate CEOs. We find that single CEOs, who are more likely to exhibit status concerns, are associated with firms that exhibit higher stock return volatility and pursue more aggressive investment policies. This effect is weaker for older CEOs. Our results hold both when we estimate the impact of marital status directly, and when we use variation in divorce laws across U.S. states to instrument for CEO marital status.
Number of Pages in PDF File: 52
Keywords: CEOs, idiosyncratic risk, status concerns
JEL Classification: G02, G30, G32, J12, K36.working papers series
Date posted: March 21, 2011 ; Last revised: December 18, 2012
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