Love or Money: The Effect of CEO Divorce on Firm Risk and Compensation
62 Pages Posted: 3 Sep 2012 Last revised: 21 Feb 2021
Date Written: February 2, 2016
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: Suggested Citation