Life is Too Short? Bereaved Managers and Investment Decisions

Abstract

We examine whether bereavement affects managerial investment decisions in large organizations using the exogenous events of managers’ family deaths. We find evidence that bereaved managers take less risk in separate samples of mutual funds and publicly traded firms. Mutual funds managed by bereaved managers exhibit smaller tracking errors, lower active share measures, and higher portfolio weights on larger stocks after bereavement events. Firms managed by bereaved CEOs exhibit lower capital expenditures and fewer acquisitions after bereavement events. Further analyses support the emotion-driven explanation over other explanations. The risk-shifting by bereaved managers has negative implications on the performance of funds and firms that they manage.

Keywords: Life Experience, Bereavement, Investment Decisions, Mutual Fund, Public Firms, Risk Taking, Endogenous Matching

JEL Classification: G12, G31, G20