The Value of Luck in the Labor Market for CEOs

48 Pages Posted: 22 Jun 2020 Last revised: 29 Mar 2021

See all articles by Mario Daniele Amore

Mario Daniele Amore

Bocconi University - Department of Management and Technology

Sebastian Schwenen

Technische Universität München (TUM); German Institute for Economic Research (DIW Berlin)

Multiple version iconThere are 2 versions of this paper

Date Written: May 28, 2020

Abstract

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

Amore, Mario Daniele and Schwenen, Sebastian, The Value of Luck in the Labor Market for CEOs (May 28, 2020). Available at SSRN: https://ssrn.com/abstract=3613544 or http://dx.doi.org/10.2139/ssrn.3613544

Mario Daniele Amore (Contact Author)

Bocconi University - Department of Management and Technology ( email )

Via Roentgen 1
Milan, MI 20136
Italy

Sebastian Schwenen

Technische Universität München (TUM) ( email )

Arcisstrasse 21
Munich, DE 80333
Germany

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany

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