A year before Bear Stearns failed during the financial crisis, there were signs that the Wall Street firm was in trouble. During July 2007, two of Bear Stearns’ large hedge funds were failing. What was CEO James Cayne doing at the time? That month, he spent ten “working” days either playing golf or the card game bridge.

The popular press is littered with anecdotes of chief executives failing to carry out their duties with the vigilance that shareholders desire of them. To be sure, there are always a few bad actors to villainize. But CEOs don’t punch a time clock. And given the varying demands of the job, CEOs engage in a wide variety of activities at different times, and at differing firms. How can we tell if the CEO is doing their best?

Many financial economists believe that high-powered executive compensation helps ensure that executives work their hardest and make the tough decisions necessary to maximize firm values. But this is difficult to prove. Why? It’s easy to measure firm performance. But it’s hard to measure CEO effort.

It turns that that studying how much time CEOs spend teeing up and putting golf balls might help us to understand the efficacy of equity-based incentives, and whether they’re being used appropriately. In a forthcoming article in Management Science, we empirically evaluate incentive compensation, firm performance, and evidence of CEOs “shirking” their duties. In other words, do some CEOs consume more leisure, and thus work less, than shareholders would prefer, to the detriment of firm performance and value?

We measure the golfing habits of a subset of CEOs of S&P 1500 firms from 2008 to 2012. Now, some rounds of golf could have a valid business component, such as networking or relationship building (despite differing gender and generational popularity of the sport). But we figure that a CEO who plays a high number of rounds each year is probably doing so because they enjoy it. We argue that the time spent playing golf is a valid proxy for personal leisure (and inversely effort) because of the time commitment required to play golf and because of the popularity of the sport with executives. After all, many continue to play to golf after they retire. It’s not work to them.

We study 350 CEOs who maintain a handicap with the United States Golf Association. That means they record the scores and number of rounds that they play. We first look at how frequently CEOs play golf, to see if there is any reason for concern.

On average, a CEO records 16 rounds of golf per year – a little more than one round per month. While this statistic seems reasonable, it masks the significant variation that we find across different CEOs. The bottom quartile record less than one round per year while those in the top quartile record on average more than 40 rounds per year. We find several CEOs who recorded more than 100 rounds of golf in a single fiscal year – roughly one round every three days! While such variation clearly does not “prove” that some CEOs are shirking their responsibilities, it is consistent with the existence of shirking.

We next consider the factors that may explain the huge variation in golf frequency across CEOs. Indeed, we find that CEOs’ financial incentives matter. That’s consistent with what financial economists would expect. CEOs play less golf when they have more overall wealth invested in their firms. They also pull out their golf clubs less often when their annual compensation is tied more closely to firm performance. We also find that CEOs play more golf as their tenure increases. That’s consistent with the notion of entrenched CEOs allocating more time to leisure.

Next, we turn to firm performance to determine if high levels of leisure consumption are associated with underperformance. Separate tests focusing on operating performance and stock market valuations both suggest that high levels of CEO leisure are associated with underperforming firms. The average return on assets (ROA) is over 100 basis points lower for the CEOs in our sample who were in the top 25% of most-frequent golfers. A similar relation exists between CEO leisure consumption and firm market capitalization, which suggests that shareholder wealth is also negatively affected by the time CEOs spent on the fairways and greens.

The inverse correlation between CEO leisure consumption and firm performance is certainly interesting, but it doesn’t necessarily mean that CEO shirking led to the poor performance (in the parlance of financial economists, we haven’t yet established that the relationship is “causal”). For instance, what if the opposite is true, that when firms perform poorly, CEOs “give up” and hit the golf course more?

To understand this relationship better, we implement a standard econometric technique called an instrumental variable analysis. This helps to identify a causal relationship in observational data when it’s not possible to conduct a classic controlled experiment. We first determine the extent to which the amount of golf CEOs play varies annually with the number of nice weather days at their firms’ headquarters. As long as firm performance isn’t also driven by the local weather, but instead only by the weather’s effect on how much CEOs golf, we can test whether excessive leisure consumption indeed leads to changes in firm performance. Our analysis confirms this relationship: a shirking CEO causes underperformance and harms shareholder wealth.

Finally, we look at CEO turnover to determine if boards are able to detect and remove shirking CEOs. Overall, we find that shirking CEOs are more likely to be replaced, especially when the CEO is early in their tenure. Stronger board independence increases the likelihood that a shirking CEO is disciplined.

What should shareholders and the public make of all this? For starters, it affirms the importance of effective incentive compensation. Perhaps those large CEO paydays are worth their cost, as long as they coincide with firm performance.

But beyond that, these results should also put investors and directors on alert, especially considering how hard it is to measure and observe CEO effort. Even with all of the focus on the creation of shareholder value and the powerful incentives – both carrots and sticks – associated with the C-suite, it appears that Cayne’s penchant for playing bridge and working on his backswing instead of going to work, though extreme, was not as anomalous as one might have hoped.