Sunday, April 15, 2007

Livin' large

An interesting tidbit: A recent study suggests that there may be some correlation between the size of a CEO's home and stock performance:

A new study makes the case that there is a strong correlation between executives' home-buying behavior and stock performance. The bigger the CEO home, the worse the company's stock fares, according to two academic researchers. They also found that companies with CEOs living in more modest abodes often see their shares outperform.

Arizona State University's Crocker Liu and New York University's David Yermack, who teach finance at their respective schools, contend that a super-sized home purchase shows entrenchment. A CEO might feel secure in his job, and therefore isn't concerned that he is going to have to leave any time soon.

Hmmm... get that big mansion adjoining the country club, life is good, the heck with how the company does. On the other hand, the CEO living in the 'hood with a little more ordinary folk may have the incentive to drive the company harder to get that mansion on the hill.

This ain't exactly the slums we're talkin' about:

Their findings certainly show a privileged class: The median home was valued at $2.7 million — more than 10 times the median sales price for all U.S. homes in 2004. It included 11 rooms plus 4.5 bathrooms, with a floor area of more than 5,600 square feet and a median land area of one and a quarter acre.

Twelve percent of CEOs' homes are on waterfronts, and 8.5 percent are next to or on golf courses. The median CEO lives 12.5 miles away from corporate headquarters, though 6 percent of those in the study lived more than 250 miles or more away — meaning it takes a plane ride to get to the office.

The researchers suggest that before buying stock, it might be a good idea to check out where the CEO lives:

Those living really large are the 12 percent of S&P 500 CEOs with homes topping 10,000 square feet, or on a minimum of 10 acres.

But occupying the biggest house on the block doesn't make you a winner on Wall Street. Their companies' stocks lagged the S&P 500 by about 25 percent over the three years after the CEOs' home purchases.

In contrast, those buying more modestly saw their companies' stocks beat the market benchmark by about the same amount.

Coincidence, or might there be something to a CEO scraping by on 5000 square feet driving the company hard so he can have his 10,000 square feet on the water with the big boys?

Meanwhile, over at Corrente, Chicago Dyke wants to burn them out of their houses. I think she's halfway serious...