45 Pages Posted: 15 Mar 2007 Last revised: 22 Oct 2007
Date Written: October 17, 2007
We study real estate purchases by major company CEOs, compiling a database of the principal 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 CEO entrenchment. 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, conspicuous consumption
JEL Classification: G32, R31
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 17, 2007). Available at SSRN: https://ssrn.com/abstract=970413 or http://dx.doi.org/10.2139/ssrn.970413
By Kevin Murphy