The Value of Luck in the Labor Market for CEOS

48 Pages Posted: 16 Jun 2020

See all articles by Mario Daniele Amore

Mario Daniele Amore

Bocconi University - Department of Management and Technology

Sebastian Schwenen

Technische Universität München (TUM); German Institute for Economic Research (DIW Berlin)

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Date Written: June 2020

Abstract

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: CEO Mobility, Compensation, corporate governance, firm performance, luck

JEL Classification: D86, G34, J33, M12

Suggested Citation

Amore, Mario Daniele and Schwenen, Sebastian, The Value of Luck in the Labor Market for CEOS (June 2020). CEPR Discussion Paper No. DP14839, Available at SSRN: https://ssrn.com/abstract=3628159

Mario Daniele Amore (Contact Author)

Bocconi University - Department of Management and Technology ( email )

Via Roentgen 1
Milan, MI 20136
Italy

Sebastian Schwenen

Technische Universität München (TUM) ( email )

Arcisstrasse 21
Munich, DE 80333
Germany

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany

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