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CEO Centrality

  • Lucian A. Bebchuk
  • Martijn Cremers
  • Urs Peyer

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.

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File URL: http://www.nber.org/papers/w13701.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13701.

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Date of creation: Dec 2007
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Publication status: published as Journal of Financial Economics Volume 102, Issue 1, October 2011, Pages 199–221 Cover image The CEO pay slice ☆ Lucian A. Bebchuka, b, K.J. Martijn Cremersc, Urs C. Peyerd,
Handle: RePEc:nbr:nberwo:13701
Note: CF LE LS
Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
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