CEO Centrality

Lucian Bebchuk (), Martijn Cremers and Urs Peyer ()

No 13701, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: D23 G32 G38 J33 J44 K22 M14 (search for similar items in EconPapers)
Date: 2007-12
New Economics Papers: this item is included in nep-cfn and nep-law
Note: CF LE LS
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Citations: View citations in EconPapers (7)

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,

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