Published Online:https://doi.org/10.5465/amd.2020.0031

We examine how CEO divorce affects firm operating performance. To this end, we use population-level data of CEOs in Denmark over the 2000–2012 sample period. Applying a difference-in-differences research design, we study matching pairs of firms with married and divorcing CEOs. We find that CEO divorce is associated with significant underperformance—as measured by operating return on assets (OROA) and industry-adjusted OROA—but only under specific circumstances: in small firms, in high-growth industries, when children are present in the CEO household, and when the income difference between the CEO and spouse is high. Overall, in addition to social implications, we find that CEO divorce can have significant economic ramifications for firms.

Whiteboard Video Abstract

REFERENCES

  • Amato, P. R. 2000. The consequences of divorce for adults and children. Journal of Marriage and Family, 62: 1269–1287. Google Scholar
  • Amstad, F. T., Meier, L. L., Fasel, U., Elfering, A., & Semmer, N. K. 2011. A meta-analysis of work–family conflict and various outcomes with a special emphasis on cross-domain versus matching-domain relations. Journal of Occupational Health Psychology, 16: 151–169. Google Scholar
  • Angrist, J. D., & Pischke, J.-S. 2014. Mastering metrics: The path from cause to effect. Princeton, NJ: Princeton University Press. Google Scholar
  • Bennedsen, M., Pérez‐González, F., & Wolfenzon, D. 2020. Do CEOs matter? Evidence from hospitalization events. Journal of Finance, 75: 1877–1911. Google Scholar
  • Bourgeois, L. J., III, & Eisenhardt, K. M. 1988. Strategic decision processes in high velocity environments: Four cases in the microcomputer industry. Management Science, 34: 816–835. Google Scholar
  • Braver, S. L., & Lamb, M. E. 2012. Marital dissolution. In G. W. PetersonK. R. Bush (Eds.), Handbook of marriage and the family: 487–516. New York, NY: Springer. Google Scholar
  • Caldwell, J. C. 1982. Theory of fertility decline (population and social structure). London, U.K.: Academic Press. Google Scholar
  • Crossland, C., & Hambrick, D. C. 2011. Differences in managerial discretion across countries: How nation-level institutions affect the degree to which CEOs matter. Strategic Management Journal, 32: 797–819. Google Scholar
  • Dahl, M. S. 2011. Organizational change and employee stress. Management Science, 57: 240–256. Google Scholar
  • Dahl, M. S., Dezső, C. L., & Ross, D. G. 2012. Fatherhood and managerial style: How a male CEO’s children affect the wages of his employees. Administrative Science Quarterly, 57: 669–693. Google Scholar
  • Dahl, S. Å., Hansen, H. T., & Vignes, B. 2015. His, her, or their divorce? Marital dissolution and sickness absence in Norway. Journal of Marriage and Family, 77: 461–479. Google Scholar
  • Eurostat. 2017. Marriage and divorce statistics. Retrieved from http://ec.europa.eu/eurostat/statistics-explained/index.php/Marriage_and_divorce_statistics. Google Scholar
  • Finkelstein, S., Hambrick, D. C., & Cannella, A. A. 2009. Strategic leadership: Theory and research on executives, top management teams, and boards. New York, NY: Oxford University Press. Google Scholar
  • Flammer, C. 2015. Does product market competition foster corporate social responsibility? Evidence from trade liberalization. Strategic Management Journal, 36: 1469–1485. Google Scholar
  • Forthofer, M. S., Markman, H. J., Cox, M., Stanley, S., & Kessler, R. C. 1996. Associations between marital distress and work loss in a national sample. Journal of Marriage and Family, 58: 597–605. Google Scholar
  • Frank, R. 10 March 2014. The cost of divorce to employers. Nashville Business Journal. Google Scholar
  • Hald, G. M., Ciprić, A., Strizzi, J. M., & Sander, S. 2020. “Divorce burnout” among recently divorced individuals. Stress and Health, 36: 457–468. Google Scholar
  • Hambrick, D. C. 2007. Upper echelons theory: An update. Academy of Management Review, 32: 334–343.LinkGoogle Scholar
  • Hambrick, D. C., & Finkelstein, S. 1987. Managerial discretion: A bridge between polar views of organizational outcomes. In B. M. StawL. L. Cummings (Eds.), Research in organizational behavior, vol. 9: 369–406. Greenwich, CT: JAI Press. Google Scholar
  • Hambrick, D. C., Finkelstein, S., & Mooney, A. C. 2005a. Executive job demands: New insights for explaining strategic decisions and leader behaviors. Academy of Management Review, 30: 472–491.LinkGoogle Scholar
  • Hambrick, D. C., Finkelstein, S., & Mooney, A. C. 2005b. Executives sometimes lose it, just like the rest of us. Academy of Management Review, 30: 503–508.LinkGoogle Scholar
  • Hambrick, D. C., & Mason, P. A. 1984. Upper echelons: The organization as a reflection of its top managers. Academy of Management Review, 9: 193–206.LinkGoogle Scholar
  • Hambrick, D. C., & Quigley, T. J. 2014. Toward more accurate contextualization of the CEO effect on firm performance. Strategic Management Journal, 35: 473–491. Google Scholar
  • Holmes, T. H., & Rahe, R. H. 1967. The social readjustment rating scale. Journal of Psychosomatic Research, 11: 213–218. Google Scholar
  • Hopper, J. 2001. The symbolic origins of conflict in divorce. Journal of Marriage and Family, 63: 430–445. Google Scholar
  • Khurana, R. 2002. The curse of the superstar CEO. Harvard Business Review, 80: 60–66. Google Scholar
  • Kutner, M. H., Nachtsheim, C. J., Neter, J., & Li, W. 2005. Applied linear statistical models (5th ed.). New York, NY: McGraw-Hill. Google Scholar
  • Larcker, D. F., McCall, A. L., & Tayan, B. 2013. Separation anxiety: The impact of CEO divorce on shareholders. Case study no. CGRP-36 in Stanford University closer look series. Retrieved from https://www.gsb.stanford.edu/faculty-research/publications/separation-anxiety-impact-ceo-divorce-shareholders Google Scholar
  • Liu, D., Fisher, G., & Chen, G. 2018. CEO attributes and firm performance: A sequential mediation process model. Academy of Management Annals, 12: 789–816.LinkGoogle Scholar
  • Lu, Y., Ray, S., & Teo, M. 2016. Limited attention, marital events and hedge funds. Journal of Financial Economics, 122: 607–624. Google Scholar
  • Meindl, J. R., Ehrlich, S. B., & Dukerich, J. M. 1985. The romance of leadership. Administrative Science Quarterly, 30: 78–102. Google Scholar
  • Miller, D., & Toulouse, J.-M. 1986. Chief executive personality and corporate strategy and structure in small firms. Management Science, 32: 1389–1409. Google Scholar
  • Neyland, J. 2020. Love or money: The effect of CEO divorce on firm risk and compensation. Journal of Corporate Finance, 60: 101507. Google Scholar
  • Nohe, C., Michel, A., & Au Sonntag, K. 2014. Family–work conflict and job performance: A diary study of boundary conditions and mechanisms. Journal of Organizational Behavior, 35: 339–357. Google Scholar
  • Peasley, M. C., Hochstein, B., Britton, B. P., Srivastava, R. V., & Stewart, G. T. 2020. Can’t leave it at home? The effects of personal stress on burnout and salesperson performance. Journal of Business Research, 117: 58–70. Google Scholar
  • Reina, C. S., Peterson, S. J., & Zhang, Z. 2017. Adverse effects of CEO family-to-work conflict on firm performance. Organization Science, 28: 228–243. Google Scholar
  • Stone, G. 2002. Nonresidential father postdivorce well-being: The role of social supports. Journal of Divorce & Remarriage, 36: 139–150. Google Scholar
  • Turvey, M. D., & Olson, D. H. 2006. Marriage & family wellness: Corporate America’s business? Minneapolis, MN: The Marriage CoMission. Google Scholar
  • US Census Bureau 2017. Families and living arrangements. Google Scholar
  • Walsh, J. P. 1995. Managerial and organizational cognition: Notes from a trip down memory lane. Organization Science, 6: 280–321. Google Scholar
  Academy of Management
  100 Summit Lake Drive, Suite 110
  Valhalla, NY 10595, USA
  Phone: +1 (914) 326-1800
  Fax: +1 (914) 326-1900
Academy of Management