Love or money: The effect of CEO divorce on firm risk and compensation

Jordan Neyland

Journal of Corporate Finance, 2020, vol. 60, issue C

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. Cash flow and accruals have lower volatility in the year of divorce, which is likely due to smoother discretionary expenses. The sensitivity of compensation to both price and volatility is significantly higher after divorce, suggesting compensation incentives adjust to portfolio incentives, with total compensation increasing by over $2 million on average. I find no evidence the results relate to increased distraction or alternative explanations.

JEL-codes: G32 K36 M12 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:60:y:2020:i:c:s0929119918304097

DOI: 10.1016/j.jcorpfin.2019.101507

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