CEO Centrality

49 Pages Posted: 31 Dec 2007 Last revised: 10 Dec 2022

See all articles by Lucian A. Bebchuk

Lucian A. Bebchuk

Harvard Law School; European Corporate Governance Institute (ECGI); National Bureau of Economic Research (NBER)

Martijn Cremers

University of Notre Dame; ECGI

Urs Peyer

INSEAD - Finance

Multiple version iconThere are 2 versions of this paper

Date Written: December 2007

Abstract

We investigate the relationship between CEO centrality -- the relative importance of the CEO within the top executive team in terms of ability, contribution, or power -- and the value and behavior of public firms. Our proxy for CEO centrality is the fraction of the top-five compensation captured by the CEO. We find that CEO centrality is negatively associated with firm value (as measured by industry-adjusted Tobin's Q). Greater CEO centrality is also correlated with (i) lower (industry-adjusted) accounting profitability, (ii) lower stock returns accompanying acquisitions announced by the firm and higher likelihood of a negative stock return accompanying such announcements, (iii) higher odds of the CEO's receiving a "lucky" option grant at the lowest price of the month, (iv) greater tendency to reward the CEO for luck in the form of positive industry-wide shocks, (v) lower likelihood of CEO turnover controlling for performance, and (vi) lower firm-specific variability of stock returns over time. Overall, our results indicate that differences in CEO centrality are an aspect of firm management and governance that deserves the attention of researchers.

Suggested Citation

Bebchuk, Lucian A. and Cremers, K. J. Martijn and Peyer, Urs C., CEO Centrality (December 2007). NBER Working Paper No. w13701, Available at SSRN: https://ssrn.com/abstract=1079280

Lucian A. Bebchuk (Contact Author)

Harvard Law School ( email )

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K. J. Martijn Cremers

University of Notre Dame ( email )

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Urs C. Peyer

INSEAD - Finance ( email )

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