Working Paper: NBER ID: w13701
Authors: Lucian A. Bebchuk; Martijn Cremers; Urs Peyer
Abstract: We investigate the relationship between CEO centrality -- the relative importance of the CEO within the top executive team in terms of ability, contribution, or power -- and the value and behavior of public firms. Our proxy for CEO centrality is the fraction of the top-five compensation captured by the CEO. We find that CEO centrality is negatively associated with firm value (as measured by industry-adjusted Tobin's Q). Greater CEO centrality is also correlated with (i) lower (industry-adjusted) accounting profitability, (ii) lower stock returns accompanying acquisitions announced by the firm and higher likelihood of a negative stock return accompanying such announcements, (iii) higher odds of the CEO's receiving a "lucky" option grant at the lowest price of the month, (iv) greater tendency to reward the CEO for luck in the form of positive industry-wide shocks, (v) lower likelihood of CEO turnover controlling for performance, and (vi) lower firm-specific variability of stock returns over time. Overall, our results indicate that differences in CEO centrality are an aspect of firm management and governance that deserves the attention of researchers.
Keywords: CEO centrality; firm value; corporate governance
JEL Codes: D23; G32; G38; J33; J44; K22; M14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| CEO centrality (CPS) (M12) | firm value (Tobin's Q) (G32) |
| CEO centrality (CPS) (M12) | accounting profitability (M41) |
| CEO centrality (CPS) (M12) | acquisition decisions (L14) |
| CEO centrality (CPS) (M12) | opportunistic option grants (G34) |
| CEO centrality (CPS) (M12) | CEO turnover (M12) |
| CEO centrality (CPS) (M12) | firm-specific variability in stock returns (G17) |