CEO marital status and capital allocation efficiency

Purpose: The extant literature provides evidence that single CEOs are less risk-averse. Building on the theory of risk aversion, the authors argue that the risk aversion trait arising from CEO’s marital status partially explains capital allocation efficiency. The paper aims to examine the association between CEO marital status and capital allocation efficiency. Design/methodology/approach: The primary sample includes 9,671 observations from 1,264 US firms. The authors apply multivariate regression and a series of endogeneity tests to examine the association between CEO marital status and capital allocation efficiency. Findings: Single-CEO firms have higher capital allocation inefficiency than those with married CEOs. The findings continue to hold after a series of endogeneity tests such as propensity score matching, change analysis and instrumental variable regression analysis and are robust to alternative proxies for capital allocation inefficiency. The capital allocation inefficiency in single-CEO firms arises from overinvestment but not underinvestment, and corporate risk-taking channels the effect. Research limitations/implications: The study is limited to the effect of CEO marital status, not CEO marital quality. Practical implications: The findings imply that besides information asymmetry and agency conflicts, CEO marital status should receive special attention for capital allocation efficiency. Also, marital status influences the CEOs’ commitment to the general good of society, affecting the potential conflict of interest with different stakeholders from inefficient capital allocation. Originality/value: This study extends corporate finance literature on CEO marital status by providing novel evidence on the effect of single CEOs on capital allocation efficiency. The authors conclude that CEOs’ personality traits, such as marital status, matter in corporate policy choices.