Hiring Lucky CEOs

Abstract

Existing research shows that luck increases CEOs’ pay at their current firm. In this work, we explore how luck affects: (1) CEOs’ employment opportunities, and (2) the performance of firms that hire lucky CEOs. Our results indicate that luck increases the likelihood to get a CEO job at new companies. Conditional on moving, lucky CEOs obtain a higher pay (both in absolute terms and relative to new industry peers) mostly due to higher incentive pay. Moreover, lucky CEOs tend to be hired by firms operating in less competitive industries. Despite the higher compensation they receive, the appointment of lucky CEOs is associated with a substantial decline in firm performance.

Keywords: Luck; CEOs; Compensation; Firm Performance; Corporate Governance

JEL Classification: G34, D86, J33, M12