The Value of Luck in the Labor Market for CEOs
45 Pages Posted: 22 Jun 2020
Date Written: May 28, 2020
It is well-known that luck increases the compensation of CEOs at their current firm. In this paper, we explore how luck affects CEOs’ outside options in the labor market, and the performance of firms that hire lucky CEOs. Our results show that luck at their current firm makes CEOs move to a new firm and be appointed as both CEO and chairman. Lucky CEOs tend to match with firms subject to low analyst coverage and operating in less competitive industries. Moreover, lucky CEOs are able to obtain a higher pay at the new firm (both in absolute terms and compared to new industry peers). Finally, difference-in-differences results show that hiring lucky CEOs hurts firm performance, mostly due to a surge in operating costs and a poorer usage of corporate assets.
Keywords: Luck, CEO Mobility, Compensation, Firm Performance, Corporate Governance
JEL Classification: G34, D86, J33, M12
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