Love or Money: The Effect of CEO Divorce on Firm Risk and Compensation

62 Pages Posted: 3 Sep 2012 Last revised: 2 Feb 2016

Jordan Neyland

The University of Melbourne; Financial Research Network (FIRN)

Date Written: February 2, 2016

Abstract

I find lower firm risk in the year of a CEO divorce. This lower volatility is consistent with a reduction in risk incentives, as CEOs pay large divorce settlements and are less able to diversify firm-specific risk from their portfolios. Divorce has a larger impact on firms with cash-poor CEOs who lack diversification. The sensitivity of compensation to both price and volatility is significantly higher after divorce, suggesting compensation incentives adjust to portfolio incentives; increasing total compensation by over $2 million on average. I find no evidence the results relate to increased distraction or alternative explanations.

JEL Classification: G30, J30

Suggested Citation

Neyland, Jordan, Love or Money: The Effect of CEO Divorce on Firm Risk and Compensation (February 2, 2016). Available at SSRN: https://ssrn.com/abstract=2140668 or http://dx.doi.org/10.2139/ssrn.2140668

Jordan Neyland (Contact Author)

The University of Melbourne ( email )

Faculty of Business and Economics
Parkville, Victoria 3010
Australia
+61 3 9035 3763 (Phone)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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