Where are the Shareholders Mansions? Ceos Home Purchases, Stock Sales, and Subsequent Company Performance

Liu, Crocker H.; Yermack, David

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Where are the Shareholders Mansions? Ceos Home Purchases, Stock Sales, and Subsequent Company Performance

NYU Working Paper No. FIN-07-042

45 Pages Posted: 13 Nov 2008

See all articles by Crocker H. Liu

David Yermack

New York University (NYU) - Stern School of Business

Date Written: October 2007

Abstract

We study real estate purchases by major company CEOs, compiling a database of theprincipal 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 CEOentrenchment. Our research also provides useful insights for calibrating utility based models of executive compensation and for understanding patterns of Veblenian conspicuous consumption.

Keywords: residential real estate, insider trading, CEO entrenchment, conspicuous consumption

Suggested Citation: Suggested Citation

Liu, Crocker H. and Yermack, David, Where are the Shareholders Mansions? Ceos Home Purchases, Stock Sales, and Subsequent Company Performance (October 2007). NYU Working Paper No. FIN-07-042, Available at SSRN: https://ssrn.com/abstract=1300781