Back in 2003, I asked whether it made sense “to make corporate managers as rich as Rockefellers” (original post). I pointed out that paying a CEO or other top executive enough to own multiple houses or become a philanthropist was probably counterproductive for the shareholders. A rich person tends to be busy with his or her possessions and distracted from work.

Just this week I noticed a 2007 study by Liu and Yermack, a couple of business school professors. They figured out where nearly all of the CEOs of the S&P 500 lived, when those houses were purchased, how much they cost, and whether the CEO sold stock to help pay for the house. The paper is detailed but the conclusion is that the guys who bought fancy houses presided over companies whose stock significantly underperformed the S&P 500 index.

More: download the paper free from this site.

[Quaint reminder: in the 2003 posting, I referred to the U.S. economy as “moribund”. Little did I know!]