Gains from Corporate Headquarters Relocations: Evidence from the Stock Market

Ghosh, Chinmoy; Rodríguez, Mauricio; Sirmans, C. F.

doi:10.1006/juec.1995.1034

Cited by 59 publications

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“…We evaluate carefully the possibility that our results may be influenced by CEOs of Finally, we note the parallel between our results and Ghosh, Rodriguez, and Sirmans (1995), who study investor reactions to several hundred announcements of corporate headquarters relocations. The authors identify a subsample of 42 cases in which the main motive appears to be transferring offices to a more luxurious building (as well as related agency issues).…”

Section: Home Purchases As Signals Of Commitment or Entrenchmentmentioning

confidence: 82%

Where Are the Shareholders’ Mansions? CEOs’ Home Purchases, Stock Sales, and Subsequent Company Performance

Liu

Yermack

2012

Corporate Governance

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Abstract:We study real estate purchases by major company CEOs, compiling a database of the principal residences of nearly every top executive in the Standard & Poor's 500 index. When a CEO buys real estate, future company performance is inversely related to the CEO's liquidation of company shares and options for financing the transaction. We also find that, regardless of the source of finance, future company performance deteriorates when CEOs acquire extremely large or costly mansions and estates. We therefore interpret large home acquisitions as signals of CEO entrenchment. Our research also provides useful insights for calibrating utility based models of executive compensation and for understanding patterns of Veblenian conspicuous consumption.Keywords: residential real estate, insider trading, CEO entrenchment, conspicuous consumption.For helpful comments we wish to thank J. Carr Bettis, Stuart Gillan, William Rabel, and seminar participants at the University of Alabama, Boston College, Center for Financial Studies (Frankfurt), Erasmus University (Rotterdam), European School of Management and Technology (Berlin), Federal Reserve Bank of New York, University of Georgia, London Business School Corporate Governance Conference, University of Lugano, Mannheim University, New Economic School (Moscow), Texas Tech University, and Tilburg University. We appreciate research assistance by Michael Gershman and Michael Mahoney. For the paper's title, we acknowledge Fred Schwed Jr., Where Are the Customers' Yachts? Or, A Good Hard Look at Wall Street (1940). 1Where are the shareholders' mansions? CEOs' home purchases, stock sales, and subsequent company performance IntroductionPurchasing a home represents a significant economic decision, involving aspects of both investment and consumption. The buyer generally adjusts his portfolio, often taking on secured debt and liquidating assets to pay the acquisition cost. Thereafter, the homeowner enjoys benefits related to the size, comfort, and location of the property. Affluent persons sometimes acquire impressive homes as signals of their personal wealth, power and importance, an age-old behavior labeled "conspicuous consumption" by sociologist Thorstein Veblen.We study real estate purchases by prominent American CEOs, compiling a database of the principal residences of nearly every top executive in the Standard & Poor's 500 index of major U.S. companies. We test whether CEOs' decisions about the size, cost, and financing of their homes contain information useful for forecasting future performance of their companies, and we find patterns with strong statistical and economic significance. When a CEO buys a home, future company performance is inversely related to the CEO's liquidation of company shares and options as a source of financing for the transaction, even though these stock sales are often small relative to the CEO's total holdings in his firm. We also find that, regardless of the source of finance, future company performance deteriorates when CEOs acquire extremely larg...

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Section: Home Purchases As Signals Of Commitment or Entrenchmentmentioning

confidence: 82%

Where Are the Shareholders’ Mansions? CEOs’ Home Purchases, Stock Sales, and Subsequent Company Performance

Liu

Yermack

2012

Corporate Governance

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“…At the business unit level, Forsgren et al (1995) examined the decision to relocate HQ overseas from a power relations point of view, and a number of researchers have given the issue peripheral attention (Hedlund, 1986;Bartlett and Ghoshal, 1989). At the corporate level, there is an established line of work on corporate HQ relocation, but its focus is largely on the costs and benefits of agglomeration, and it is concerned primarily with relocations within a given city or region (Alli, Ramirez, and Yung, 1991;Ghosh, Rodriguez, and Sirmans, 1995;Semple and Phipps, 1982). There is also a body of literature concerned with the motivations for listing the MNC's stock overseas (Bancel and Mittoo, 2001;Coffee, 2002;Foerster and Karolyi, 1999;Pagano, Roell, and Zechner, 2002;Saudagaran and Biddle, 1995;Salva, 2003).…”

Section: This Paper Examines the Decision By A Multinational Corporatmentioning

confidence: 99%

Why do some multinational corporations relocate their headquarters overseas?

Birkinshaw

Braunerhjelm

Holm

et al. 2006

Strategic Management Journal

155

212

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This paper examines the decision by a multinational corporation (MNC) to relocate its business unit and/or corporate HQ overseas. We argue that business unit HQs move overseas in response to changes in the internal configuration of their unit's activities and the demands of the product markets in which they operate, whereas corporate HQs move overseas in response to the demands of external stakeholders, in particular global financial markets and shareholders. Using data onThis paper examines the decision by a multinational corporation (MNC) to locate its corporate or business unit headquarters overseas. It is concerned with understanding the factors that lead the executives of the MNC to shift their headquarters away from the traditional home country of operation, and in particular how the drivers for corporate HQ relocation are different from the drivers of business unit HQ relocation. The study is motivated by three lines of argument.First, the research contributes to our understanding of the role of the corporate HQ in the multibusiness firm. There is a well-established distinction in the strategic management literature between Keywords: multinational corporation; headquarters; corporate strategy; internationalization * Correspondence to: Julian Birkinshaw, London Business School, Regent's Park, London NW1 4SA, U.K. E-mail: jbirkinshaw@london.edu business unit strategy (concerned with the competitive positioning of a business within its chosen industry domain) and corporate strategy (which defines the scope of businesses in which the firm participates, and the ways in which value is added across those businesses; Bourgeois, 1980;Chandler, 1991;Hofer and Schendel, 1978). Research has examined the differences between these two levels of analysis, in terms of the content of strategy and the process of strategy-making. The current research continues in this tradition by focusing on the different roles of business unit and corporate HQs in a multinational corporation, and in particular on their relationships with various internal and external stakeholders. By examining the drivers of HQ relocation decisions, we are able to show that business unit HQs move overseas in response to changes in the internal configuration of their unit's activities and the demands of the product markets in which they operate, whereas corporate HQs move overseas in response to the demands of external stakeholders, in particular global financial markets and shareholders. This externally facing role is potentially an important addition to our understanding of the role of the corporate HQ in the multi-business firm (cf. Chandler, 1991;Foss 1997;Goold, Campbell, and Alexander, 1994).Second, geographical location affects firm competitiveness, so any decision to relocate specific activities overseas is potentially very important to the future success of the MNC. There are wellestablished theories of agglomeration in the literature, and it is now accepted that proximity to specialized labor, complementary suppliers and customers, and access to ...

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“…Most research in the field of location decisions has tended to focus exclusively on the decision making of large firms (Haigh, 1990;Decker and Crompton, 1993;Hughes, 1994;Ghosh et al 1995;Brush et al 1999;O'Mara, 1999;Alberto, 2000;Baravick and Steele, 2001;Wrigglesworth and Nunnington, 2004;Scheffer et al 2006). One exception is work by Mazzarol and Choo (2003), based on face-to-face interviews with firms involved in industrial and commercial property sales and land developments, the convening of 11 stakeholder and expert panels, and a telephone survey of firms of varying size.…”

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confidence: 99%

An Examination of Business Occupier Relocation Decision Making: Distinguishing Small and Large Firm Behaviour

Greenhalgh

2008

Journal of Property Research

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Gains from Corporate Headquarters Relocations: Evidence from the Stock Market

Cited by 59 publications

References 0 publications

Where Are the Shareholders’ Mansions? CEOs’ Home Purchases, Stock Sales, and Subsequent Company Performance

Where Are the Shareholders’ Mansions? CEOs’ Home Purchases, Stock Sales, and Subsequent Company Performance

Why do some multinational corporations relocate their headquarters overseas?

An Examination of Business Occupier Relocation Decision Making: Distinguishing Small and Large Firm Behaviour

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