Linking CEO’s house size to corporate performance

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Linking CEO’s house size to corporate performance

I have received favorable comments on my observation connecting the state of a corporate headquarters’ stairways with their long-term performance. Unconventional or bizarre is in the eye of the beholder.

While I was reading the Wall Street Journal recently the following article (actually a reprinted blog) caught my eye "The Link Between CEO Mansions and Stock Prices".  Two finance professors, David Yermack of New York University and Crocker Liu of Arizona StateUniversity, studied the link between the size of a CEO’s house and their stock performance. And surprise, the bigger the house the worse the stock performance!

They examined over 400 CEOs in S&P 500 companies and found that 12% of them lived in a house of over 10,000 square feet or at least 10 acres. Over 10k square feet! They lagged their smaller domiciled CEO
brethren by 7%. And those CEOs who purchased the mega-mansions after they took the CEO job "lagged the behind the S&P by about 25% in the three years after the purchases."

Still not convinced? "CEO buyers of smaller homes, by comparison, beat the S&P average in that period by 22%." Why did this happen? The professors suggested maybe the CEOs with the mega-mansions were potentially "cashing out" after a strong stock performance.

I’ll add that a wealthy individual who buys the mega-mansion has a different mindset than a
wealthy person who instead buys a reasonable, but not mega-mansion-size house. Ostentatious, self-assured or self-absorbed might work well when the going is good but gets in the way when you need to steer the corporation through changes. Why sweat it out when you go home to your mega-mansion?   

The definitive work on unconventional economic observations was written by Steven Levitt and Stephen Dubner in their book Freakonomics. This book illustrated us that rogueFreakonomics or "offbeat" approaches to economics or finance sometimes do make sense. I have heard Steven Levitt as a keynote speaker at the Gartner BI Conference last year and found his ideas fascinating and enjoy his blog.

 

2 Comments

  1. Linking CEO???s house size to corporate performance

  2. Re: Housing Bust coming to a city near you…

    No housing bust for the CEOs!!
    http://datadoghouse.typepad.com/data_dogh

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