The spouse effect and CEO risk-taking

Abstract

We examine how a CEO's family life affects their corporate decisions. Specifically, we investigate whether a CEO's spouse's professional status affects the CEO's risk-taking behavior. Using a sample of S&P 500 firms from the 2010 to 2012 period, we find evidence that CEOs with spouses who are professionals, defined as working spouses, spouses holding graduate degrees, or spouses graduated from Ivy League schools, tend to adopt riskier corporate policies. Our evidence suggests that firms led by CEOs with professional spouses exhibit higher accounting return volatility, make more aggressive financial reporting decisions, and invest more in risky assets. We do not find a significant association between professional spouses and firms’ market return volatility. Our results are consistent with the indirect channel theory, which suggests that CEOs with professional spouses might be inclined to undertake higher risks, potentially stemming from heightened conflicts between family and work commitments or improved wealth diversification attributed to their spouses' professional standing.