Status, Marriage, and Managers’ Attitudes To Risk

Relative wealth concerns can affect risk-taking behavior, as the payoff to a marginal dollar of wealth depends on the wealth of others. In particular, status concerns that arise endogenously due to competition in the marriage market can lead to greater risktaking if the more desirable mates prefer wealthier suitors. We evaluate empirically the importance of this effect in a high-stakes setting by studying risk-taking of corporate CEOs. We find that single CEOs, who are more likely to exhibit status concerns, are associated with firms that exhibit higher stock return volatility and pursue more aggressive investment policies. This effect is weaker for older CEOs. Similarly to corporate CEOs, single mutual fund managers exhibit greater idiosyncratic risk in their portfolio returns. Similarly to the CEOs, mutual fund managers who are single exhibit greater idiosyncratic risk exposure than their married peers. ∗We gratefully acknowledge support from the Rodney L. White Center for Financial Research (in particular the Terker Family Research Fellowship) and from Cynthia and Bennett Golub. †The Wharton School, University of Pennsylvania, and NBER; e-mail: [email protected] ‡The Wharton School, University of Pennsylvania; e-mail: [email protected] 1 USC FBE FINANCE SEMINAR presented by Nikolai Roussanov FRIDAY, April 8, 2011 10:30 am – 12:00 pm, Room: JKP-202