Working Paper: CEPR ID: DP14839
Authors: Mario Daniele Amore; Sebastian Schwenen
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: luck; CEO mobility; compensation; firm performance; corporate governance
JEL Codes: G34; D86; J33; M12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| luck (Y60) | CEO mobility (M12) |
| luck (Y60) | CEO transitions (M12) |
| luck (Y60) | positions obtained at new firms (L26) |
| luck (Y60) | characteristics of firms matched with (L25) |
| luck (Y60) | compensation of CEOs (M12) |
| luck (Y60) | corporate outcomes of hiring firms (M51) |
| CEO mobility (M12) | likelihood of moving to a new firm (J62) |
| lucky CEOs (M12) | match with poorly governed firms (G38) |
| lucky CEOs (M12) | higher compensation (J33) |
| hiring lucky CEOs (M12) | negative impact on firm performance (L25) |