Illustration by Jason Polan
Illustration by Jason Polan

Larry Ellison and Steve Ballmer both run large software companies. Their operating styles, however, are a study in contrasts.

At Oracle Corp., Ellison has stormed into new markets, making daring acquisitions and denouncing his competitors. At Microsoft Corp., Ballmer has maintained a lofty cash balance while generally adopting a less strident view of his peers, at least in public. Can this schism be explained entirely by strategic differences between the two companies -- or are CEOs’ personalities and life circumstances relevant, too?

Determinants of corporate investment have been studied for decades. In economics, most such analyses assumed that company characteristics and circumstances play a dominant role, with everything else relegated to the background. There is growing evidence, though, that the personal characteristics of chief executive officers can be quite important. In a recent paper, we hypothesized that CEOs’ concern for social position may result in different attitudes toward risk, and thus affect their companies’ investment policies.

Since their earliest days, humans have been concerned about relative position. Your rank in relation to your peers has been important for, among other things, the choice of a mate. If relative success determines ability to find a desirable mate, it may explain some of the drive to outdo the competition even if you have more money than you know how to spend. Such competition creates a kind of tournament, raising your tolerance for taking large financial risks.

Daredevil Drivers

Indeed, evidence in psychology indicates that mating concerns are important for risk-taking, at least among males. Auto insurers have long realized that single people behave more aggressively, charging them higher premiums to compensate for greater risk.

We were curious whether this behavior could be found in an environment where the stakes are high and consequences far-reaching. Do status concerns help explain CEO behavior? If marriage market competition is indeed important, then single managers, who are presumably active in the market for mates, should act more aggressively in hopes of making it really big. Married ones should be more risk-averse.

We collected data on the marital histories of the CEOs of 1,500 publicly traded companies, including Oracle’s Ellison (currently single; married four times) and Microsoft’s Ballmer (married since 1990). We found that companies whose CEOs are single invest substantially more than other companies, in particular when it comes to investments subject to the greatest uncertainty, such as acquisitions or research and development. These companies’ stock returns are also substantially more volatile, indicating that they are indeed exposed to greater risk.

We tested our findings to make sure that we weren’t just finding greater appetites for risk among younger managers, who are less likely to be married, or at smaller companies, which are more volatile. We found this relationship between marital status and companies’ risk-taking persists even after adjusting for age and company size.

Beating the Market

Extending our analysis to mutual-fund managers, we find evidence that single managers take more idiosyncratic risk -- that is, attempt to beat the market more aggressively -- than married ones.

Of course, it is possible that getting married and starting a family has a direct effect on lowering one’s risk appetite. Perhaps people become more conservative simply because they are concerned about not having enough money to provide for their spouse and children. But most CEOs have enough wealth to ensure a comfortable life for their families even if their company goes bankrupt.

Does this mean corporate boards should require a new CEO to be married to avoid excessive risk-taking? Not necessarily. After all, risk is in the nature of business, and without risk-taking, innovation and economic growth are impossible. The key is to have the right person for the right job. A young company looking for a big break might be well served by an ambitious young CEO looking to take the place of Ellison as the most eligible bachelor on the Forbes 400 list.

Marital status obviously can’t explain everything. Look at Lehman Brothers Holdings Inc., which collapsed in spectacular fashion in 2008, even though its CEO, Dick Fuld, famously promoted a corporate culture that prized successful marriages. Even so, the disparity between single and married leaders deserves recognition as a hidden factor that can influence corporate behavior and risk.

(Nikolai Roussanov and Pavel Savor are assistant professors of finance at the University of Pennsylvania’s Wharton School.)

To contact the writers of this article: Nikolai Roussanov at nroussan@wharton.upenn.edu and Pavel Savor at psavor@wharton.upenn.edu.

To contact the editor responsible for this article: George Anders at ganders1@bloomberg.net.