Single CEOs, Bigger Risk Takers than Married CEOs

SiliconIndia  |   Monday, 26 November 2012, 16:35 IST

Bangalore: If a question of whether or not unmarried CEOs take bigger risks is brought up, definitely the answer would be a ‘YES’. It is found that single CEOs are associated with firms which have higher stock returns and go for investment policies which have greater risk.

Single CEOs would more likely go for capital investments and acquisitions. The basic idea behind this is that, since highly attractive marriage partners are hard to find and scarce, high income earners like CEOs must compete for their attention. Single high income earners value their income more than do married high income earners and these single income earners value each additional dollar they earn more than do married high-income earners. These additional dollars gives them the want and desire to consume more and also develops their chances of finding themselves a better marriage partner

Therefore Single high income earners are encouraged to assume investment policies that are more aggressive and expose shareholders to greater risk in pursuit of more income.

It is also found that single CEOs would be associated firms which exhibit higher stock return and go for investment policies which have greater risk. But it’s seen that this effect is weaker for older CEOs. The impact of marital status is high for risk taking. 

It is also possible that married CEOs prefer less risk and not exactly that single CEOs are willing to go for a higher risk. And in a general sense, single people would not like to go for higher risk while compared to a married couple.

It is also possible that a marriage completely changed the usefulness of wealth in terms or needs and wants, by combining the preferences of the spouse into the CEO’s objective function.

For example, a CEO who has to support a spouse and children may have a higher required level of consumption expenditure and therefore income. This would make married CEOs electively more risk-averse than single ones for reasons that have nothing to do with status. However, under rational expectations the possibility of getting married in the future should apex one's decisions even prior to getting married, and therefore it is ambiguous whether their marriage itself would have an effect on CEO risk taking.