The Value of Luck in the Labor Market for CEOs / BY: Mario Daniele Amore, Bocconi University and CEPR & Sebastian Schwenen, Technical University of Munich and DIW Berlin
It is well-known that luck increases the compensation of CEOs at their current firm. In this
paper, we explore how luck affects CEOs’ outside options in the labor market, and the
performance of firms that hire lucky CEOs. Our results show that luck at their current firm
makes CEOs move to a new firm and be appointed as both CEO and chairman. Lucky CEOs
tend to match with firms subject to low analyst coverage and operating in less competitive
industries. Moreover, lucky CEOs are able to obtain a higher pay at the new firm (both in
absolute terms and compared to new industry peers). Finally, difference-in-differences results
show that hiring lucky CEOs hurts firm performance, mostly due to a surge in operating costs
and a poorer usage of corporate assets.