The Value of Luck in the Labor Market for CEOs
48 Pages Posted: 22 Jun 2020 Last revised: 29 Mar 2021
Date Written: May 28, 2020
Existing works show that luck (i.e. positive shocks to market value unrelated to CEOs’ effort) increase CEOs’ pay at their current firm. In this work, we explore how luck affects CEOs’ employment opportunities, and the performance of firms that hire lucky CEOs. Our results indicate that luck makes CEOs move to new firms and be appointed as both CEO and chairman. Moreover, lucky CEOs obtain a higher pay (in absolute terms and compared to new industry peers) and are more likely to match with firms that operate in less competitive industries. Following the appointment of a lucky CEO, hiring firms experience a decline in operating performance, mostly due to higher operating costs and a poorer usage of corporate assets.
Keywords: Luck; CEOs; Compensation; Firm Performance; Corporate Governance
JEL Classification: G34, D86, J33, M12
Suggested Citation: Suggested Citation