The CEO mansion indicator

Shareholders beware. After a chief executive buys an extremely large or expensive house, his company’s performance slides.

That’s a central finding from a study – “Where are the shareholders’ mansions?” — of nearly every top executive in the S&P 500 by Crocker Liu at Arizona State and David Yermack at NYU.

The researchers also found that when a CEO buys a home, his company’s performance is inversely related to his “liquidation of company shares and options as a source of financing.”

The median CEO home in the study had more than 5,600 square feet, 11 rooms, 4.5 baths, was situated on 1.25 acres and was valued at $2.7 million in 2006. CEOs like waterfront (12% of the homes were on water) and golf courses (8.5 percent). The researchers found no correlation among waterfront or golf course homes and company performance.

Thanks to Mark Andreessen, who flagged the paper on his blog.

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