When a CEO Buys a Mansion, Short the Stock
November 23, 2007 – 7:22 pmI thought this was a rather interesting study on CEOs and real estate. Originally on the iPienso blog:
A new paper by Crocker Liu and David Yermack, ‘Where Are the Shareholder’ Mansions? CEOs’ Home Purchases, Stock Sales and Subsequent Company Performance.” Key finding:
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…
When the CEO does not sell any shares, his stock performs significantly better ex post than the stocks of firms whose CEOs do liquidate equity to finance their houses. The retention of company shares simultaneous with a new home purchase, despite the presence of an evident personal liquidity need, appears to send a signal of commitment by a CEO to his company.
2 Responses to “When a CEO Buys a Mansion, Short the Stock”
Incredibly logical and interesting relation. Thanks for posting.
By Nancy Moeller on Nov 24, 2007
Had never given much thought to this before. It makes sense though, especially when reviewing what has happened with some companies in the recent past. Thanks for sharing this information.
By Cris Burlew, Broker ~ St Pete Beach FL Real Estate on Nov 24, 2007