NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

CEO Centrality

Lucian A. Bebchuk, Martijn Cremers, Urs Peyer

NBER Working Paper No. 13701
Issued in December 2007
NBER Program(s):   CF   LE   LS

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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Document Object Identifier (DOI): 10.3386/w13701

Published: 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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