Unbearable cost: analysis of the economic consequences of senior executives’ divorces

XU Liping1 LAI Dandan2 Xinyu1

(1.Sun Yat-sen Business School)
(2.Shenzhen Branch of PWC)

【Abstract】During recent years, due to the close attention from the media, divorces of senior executives have become public events with social influence. This article researches 13 listed companies in which there had been divorced senior executives by the end of 2014, and conducts an in-depth analysis of the influence of senior executives’ divorces on corporate governance, share price, corporate performance and so on. We get the following findings. (1) Divorces of senior executives could directly reduce the ownership concentration of a company, change the rankings of shareholders, and further affect the divorced executives’ status and positions in the company, which may cause changes in the board of directors and loss of big customers. (2) The market tends to have a negative short-term response to senior executives’ divorces. On the first day after the divorce is known to the market, the average abnormal return is −0.75%, and then the bad news will be gradually absorbed by the market. (3) Divorces of senior executives have a significant impact on corporate performance. After the divorces, the profitability and estimated stock value of the company decline. Besides, the divorces could also lead to increased volatility as well as reduced capital expenditure and debt ratio. (4)Economic consequences of senior executives’ divorces vary in accordance with the characteristics and divorce arrangements of these senior executives. Divorces of female senior executives and the consequent equal division of shares usually bring higher risk and uncertainty, and divorce of a principal executive or the largest shareholder could trigger even more severe economic consequences. Meanwhile, signing voting rights entrustment agreements can partly reduce the risk and uncertainty brought by senior executives’ divorces.

【Keywords】 divorces of senior executives; corporate governance; market response; corporate performance;

【DOI】

【Funds】 General Project of the National Natural Science Foundation of China( 71372151,71272201) Key Project of the National Natural Science Foundation of China(71231008)

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This Article

ISSN:1002-5502

CN: 11-1235/F

Vol , No. 05, Pages 117-133+159

May 2015

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Article Outline

Abstract

  • 1 Introduction
  • 2 Literature review and theoretical analysis
  • 3 Divorces of senior executives and the influence
  • 4 Market response to senior executives’ divorces
  • 5 Senior executives’ divorces and corporate performance
  • 6 Conclusion
  • References