Captains of Industry, Take Note
Posted in Miscellaneous on April 9th, 2007 by JennyThis post is for you captains of industry, boards that hire them, fund managers who bet on them and the average Joe (or Jane) who invests in the companies they run. A little knowledge never hurt anyone.
It seems bigger isn’t always better, especially for companies and stockholders, when it comes to the desires of their leaders. I ran across a great post from It is a Numeric Life citing an interesting study released in 2007 which located the primary residences of 488 CEOs of S&P 500 Companies and demonstrated a link between CEO home purchases and the stock performance of the company’s they ran. Click here to read the post.
This study, authored by two finance professors, found the average S&P 500 CEO home was more than 6,000 square feet, had 12 rooms, over 5 acres of land and a market value of $3.1 million. The analysis found:
- CEOs who lived in houses larger than the average of their S&P 500 peers had stocks that returned 3.35%* less than the stocks of companies whose CEOs lived in below-average sized homes; and
- CEOs who lived in the biggest homes of the group surveyed had stocks that underperformed their rivals in homes identified as being average or below average for this group by 6.9%*.
The study also examines the stock performance for 164 companies who had CEOs that purchased new homes after coming on board. When the CEOs bought the super large homes (10,000 square feet with 10 or more acres) their company’s stock performance suffered – to the tune of 1.25% performance lag each month.
Make of this what you will – use it for hiring advice, investment advice or as just plain old sage advice…
Click here to read the entire report yourself.
*on average
June 5th, 2007 at 11:25 am
What a thought provoking post I think that perhaps the home buying is really just the manifestation of the CEO’s greater opinion on his or her role within the company. Meaning that by purchasing the ostentatiously large home the CEO is stating with a great deal of self-importance that his status is superior and that his comfort and lifestyle is of paramount concern. Whereas the CEO’s who purchase smaller homes are instead willing to not have the biggest, fanciest house on the block instead opting for more functional and realistic luxury that allows them to remain more focused on the needs and demands of their company, and not the needs and demands of their luxurious lifestyle. It seems that this house buying is a simple reflection of priority and well not a completely rock solid investment strategy the mindset of the CEO seems like a point of concern for me when investing my money into someone else’s corporation.
August 8th, 2007 at 9:12 pm
Thanks Jon for you thoughts. I agree that the house thing is pretty telling of one’s view of what is priority. I wonder what one would say about my dwelling…
(Jenny, that smiley face is just for you!)