studies

The marriage plot: Single CEOs make for riskier investments

March 13, 2012: 5:00 AM ET

Risk averse?

A new NBER study suggests you might want to check out the marital status of a company's CEO before investing.

FORTUNE -- Here's another study that will make you scratch your head about corporate America. A working paper released this week by the National Bureau of Economic Research finds that the stocks of companies with chief executives who are single are riskier than the shares of companies run by CEOs who are hitched.

The study, which was conducted by two professors at University of Pennsylvania's Wharton School, looked at 1500 companies and the marital status of the companies' CEOs. The professors found a real difference in the behavior of companies run by CEOs who are single and those run by married top executives. The companies with an unmarried CEO tended to spend more money on things like R&D, acquisitions and other investments that could more rapidly increase the size of their businesses, but also had a higher chance of blowing up. The result was a more volatile stock price.

Why are single CEOs more risk-prone? Here's where the study, which is titled Status, Marriage and Managers' Attitudes to Risk, gets a little dicey. Co-authors Nikolai Roussanov and Pavel Savor argue that it has to do with dating. Single individuals will take on more risk to increase "spouse quality." Says Roussanov, "Even among CEOs, relative position seems to matter in the marriage market." Roussanov says it is possible that people who chose to be single are just risk-takers by nature, but he doesn't think that is the answer. Nor did he think his results were skewed by the fact that technology companies tend to make more R&D investments and have younger CEOs. He said the results he found where the same across industries and the same no matter where the CEO lived, despite different divorce laws which could make marriage, if you are trying to protect your wealth, a riskier proposition.

Roussanov pointed to Larry Ellison of Oracle (ORCL) and Steve Ballmer of Microsoft (MSFT) as examples. Ellison, who has been single many times in his career ("He's made the round trip transaction a few times," says Roussanov.), has completed a number of large acquisitions in his career and been combative with competitors, Roussanov says. Balmer, who has been married for much of his career, has been criticized for not spending more of Microsoft's large cash hoard.

In all, about 20% of the companies they looked at had single CEOs. Roussanov couldn't say whether there was a difference in behavior between single women CEOs and single male CEOs. There wasn't enough women CEOs for the results to be statistically significant.

So what to make of all this? One good question is why two Wharton professors are venturing into the dating, or not dating, lives of CEOs. Roussanov says the issue has to do with how much influence a CEO has on the company. That plays into the debate about whether CEOs are overpaid. Roussanov says his research suggests that CEOs, and more specifically their private lives, do matter, perhaps a little too much. Boards should be able to mitigate any corporate risk taking made solely because the CEO is trying to get a hotter or smarter spouse. Apparently they are not.

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