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;


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

Download this article


    (1)Bian, Y. & Qiu, H. Social Sciences in China(中国社会科学),(2)(2000).

    (2)Chen, T., Liu, L. & Cao, G. Modern Management Science (现代管理科学),(7)(2010).

    (3)Chen,X. Journal of Zhengzhou Institute of Aeronautical Industry Management(郑州航空工业管理学院学报),(2)(2007).

    (4)Jiang,F., Yin,Z.& Su,F. et al. Management World(管理世界),(1)(2009).

    (5)Lei,H. & Chen, Z. Finance and Trade Research(财贸研究),(2)(2008).

    (6)Li,X. New Wisdom·Finance (新智慧·财经)(3)(2014).

    (7)Aassve,A.,G.Betti,S.Mazzuco and L.Mencarini,2007,“Marital Disruption and Economic Well-being:A Comparative Analysis”,Journal of the Royal Statistical Society:Series A(Statistics in Society),Vol.170(3 ),pp.781–799.

    (8)Astrachan,J.H.,S.Klein and K.Smyrnios,2002,“The F-PEC Scale of Family Influence:A Proposal for Solving the Family Business Definition Problem”,Family Business Review,Vol.15(1 ),pp.45-57.

    (9)Barber,B.and T.Odean,2001,“Boys will be Boys:Gender,Overconfidence and Common Stock Investment”,Quarterly Journal of Economics,Vol.116,pp.261-292.

    (10)Bertocchi,G.,M.Brunetti and C.Torricelli,2009,“Marriage and Other Risky Assets:A Portfolio Approach”,IZA Discussion Paper Series,No.3975.

    (11)Browning,M.,1992,“Children and Household Economic Behavior”,Journal of Economic Literature,Vol.30,pp.1434-1475.

    (12)Bunkanwanicha,P.,J.P.H.Fan and Y.Wiwattanakantang,2013,“The Value of Marriage to Family Firms”,Journal of Financial and Quantitative Analysis,Vol.48(2 ),pp.611-636.

    (13)Butcher,K.F.and A.Case,1994,“The Effect of Sibling Sex Composition on Women’s Education and Earnings”,The Quarterly Journal of Economics,Vol.109,pp.531-563.

    (14)Carpenter,M.A.,M.A.Geletkanycz and W.G.Sanders,2004,“Upper Echelons Research Revisited:Antecedents,Elements and Consequences of Top Management Team Composition”,Journal of Management,Vol.30(6 ),pp.749-778.

    (15)Christiansen,C.,J.S.Joensen and J.Rangvid,2011,“The Effects of Marriage and Divorce on Financial Investments”,Working Paper,Aarhus University.

    (16)Del Boca,D.,2003,“Mothers,Fathers and Children after Divorce:The Role of Institutions”,Journal of Population Economics,Vol.16,pp.399-422.

    (17)Gilbert,E.,2010,Committed:A Love Story,Bloomsbury Publishing Plc,London.

    (18)Hambrick,D.C.and P.A.Mason,1984,“Upper Echelons:The Organization as a Reflection of its Top Managers”,Academy of Management Review,Vol.9(2),pp.193-206.

    (19)Helmsing,B.,2001,“Externalities,Learning and Governance:New Perspectives on Local Economic Development”,Development and Change,Vol.32(2),pp.277-308.

    (20)Larcher,D.F.,A.L.Mc Call and B.Tayan,2013,“Separation Anxiety:The Impact of CEO Divorce on Shareholders”,Stanford Closer Look Series–CGRP36,Rock Center for Corporate Governance.

    (21)Maak,T.,2007,“Responsible Leadership,Stakeholder Engagement and The Emergence of Social Capital”,Journal of Business Ethics,Vol.74(3),pp.329-343.

    (22)Neyland,J.,2011,“Wealth Shocks and Executive Compensation:Evidence from CEO Divorce”,Doctoral Thesis,The University of Arizona.

    (23)Nicolosi,G.and A.S.Yore,2015,“I Do:Does Marital Status Affect How Much CEOs Do?”Financial Review,Vol.50(1),pp.57-88.

    (24)Park,S.H.and Y.Luo,2001,“Guanxi and Organizational Dynamics:Organizational Networking in Chinese Firms”,Strategic Management Journal,Vol.22(5),pp.455-477.

    (25)Peterson,R.R.,1996,“A Re-evaluation of the Economic Consequences of Divorce”,American Sociological Review,Vol.61,pp.526-536.

    (26)Poza,E.and T.Messer,2001,“Spousal Leadership and Continuity in the Family Firm”,Family Business Review,Vol.14(1),pp.25-35.

    (27)Putnam,R.,1993,Making Democracy Work:Civic Traditions In Modern Italy,Princeton University Press.

    (28)Roussanov,N.and P.G.Savor,2012,“Status,Marriage and Managers’Attitudes to Risk”,NBER Working Paper,No.17904.

    (29)Sheet,V.and S.Braver,1996,“Gender Differences in Satisfaction with Divorce Settlements”,Family Relations,Vol.45(3),pp.336-342.

    (30)Tihanyi,L.,A.E.Ellstrand,C.M.Daily and D.R.Dalton,2000,“Composition of the Top Management Team and Firm International Diversification”,Journal of Management,Vol.26(6),pp.1157-1177.

    (31)Watson,W.E.,L.D.Ponthieu and J.W.Critelli,1995,“Team Interpersonal Process Effectiveness in Venture Partnerships and its Connection to Perceived Success”,Journal of Business Venturing,Vol.10(3),pp.393-411.

    (32)West III,G.P.and G.D.Meyer,1998,“To Agree or Not to Agree?Consensus and Performance in New Ventures”,Journal of Business Venturing,Vol.13(5),pp.395-422.

    (33)Wheatley,W.J.,J.F.Vogt and K.L.Murrell,1991,“The Concern of Divorce in Organizations:A Survey of Human Resource Managers”,Journal of Divorce and Remarriage,Vol.15(3-4),pp.193-204.

This Article


CN: 11-1235/F

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

May 2015


Article Outline


  • 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