September 05, 2007

CEO McMansions and Corporate Performance

Here's a fun paper via Marginal Revolution:

Where are the Shareholder's McMansions: CEO's Home Purchases, Stock Sales, and Subsequent Company Performance

We study real estate purchases by major company CEOs, compiling a database of the principal residences of nearly every top executive in the Standard & Poor's 500 index. When a CEO buys real estate, future company performance is inversely related to the CEO's liquidation of company shares and options for financing the transaction. We also find that, regardless of the source of finance, future company performance deteriorates when CEOs acquire extremely large or costly mansions and estates. We therefore interpret large home acquisitions as signals of CEO entrenchment. Our research also provides useful insights for calibrating utility based models of executive compensation and for understanding patterns of Veblenian conspicuous consumption.

September 5, 2007 in Firms, White Paper Reports | Permalink | Comments (0) | TrackBack