Firms With CEOs Who Play More Golf Tend To Underperform: Study – ValueWalk Premium

Firms With CEOs Who Play More Golf Tend To Underperform: Study

A recent academic study published in the Social Science Research Network suggests that firms that have CEOs that engage in significant leisure time activities tend to underperform relative to companies whose CEOs spend less time at leisure.

Academics Lee Biggerstaff (Miami University), David C. Cicero (Univ. of Alabama) and Andy Puckett (Univ. of Tennessee, Knoxville) analyzed data from a variety of sources to demonstrate that “CEOs that golf frequently (i.e., those in the top quartile of golf play, who play at least 22 rounds per year) are associated with firms that have lower operating performance and firm values. Numerous tests accounting for the possible endogenous nature of these relations support a conclusion that CEO shirking causes lower firm performance. We find that boards are more likely to replace CEOs who shirk, but CEOs with longer tenures or weaker governance environments appear to avoid disciplinary consequences.”


Results of study of CEOs leisure time

Earlier academic research has shown that some CEOs shirk their responsibilities, and that this typically has a negative correlation with performance and value. Of note, firms with CEOs in the top 25% of those who golf most frequently (those who play 22 rounds or more per year) have relatively lower operating performances and firm values. Moreover, the researchers point out their conclusions regarding CEO effort and firm performance are supported by a range of statistical tests that take into account the possible endogeneity of this relation, including an instrumental variable analysis.

The study also provides strong evidence that shirking by CEOs is persistent across time.However, it should be noted that the CEOs who spend the most time at leisure are significantly more likely to be replaced when their companies have independent boards.

CEOs 2 Golfing

Study methodology

The methodology for this study involved hand-collecting golf records for 363 S&P 1500 CEOs from a database maintained by the United States Golf Association. This useful historical database has records for each round recorded in the system by all participating golfers from 2008 to 2012.

The researchers decided that time on the golf course is a “reasonable proxy” for leisure consumption because a plurality of CEOs list golf as their preferred outlet for leisure and because it takes several hours to play a round of golf (significant time commitment)  Moreover, playing a lot of golf regularly may hint at a preference for leisure, where, for example, the golfing frequency of a CEO is correlated with time spent at other hobbies or vacations.

James Cayne, the former CEO of Bear Stearns, is a classic example of the golf-shirking CEO. The Wall Street Journal reported that Cayne played golf or bridge on 10 of 21 working days in July 200, which was the month that two Bear Sterns hedge funds collapsed (Kelly, 2007) and the financial crisis began in earnest.

The full study can be found here GOLF-CEOs


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