Agency Problems in Public Firms: Evidence from Corporate Jets in Leveraged Buyouts

Abstract

This paper uses novel data to examine the fleets of corporate jets operated by both publicly traded and privately held firms. In the cross-section, firms owned by private equity funds average 40% smaller fleets than observably similar public firms. Similar fleet reductions are observed within firms that undergo leveraged buyouts. Quantile regressions indicate that these results are driven by firms in the upper 30% of the conditional jet distribution. Results thus suggest that executives in a substantial minority of public firms enjoy excessive perquisite and compensation packages.

Keywords: Agency problem, corporate governance, executive compensation, private equity, corporate jet

JEL Classification: G34, G39, J33, J44