Study: Flying CEOs Hurt Corporate Returns

April 13, 2004 ( - Companies allowing their chief executive personal use of a corporate aircraft show average shareholder returns that underperform market benchmarks by more than 4% annually, according to a study.

A study by David Yermack, associate professor of finance at New York University Stern School of Business, showed that the gap between returns of those not allowing the executive aircraft use and those that do far exceeded the costs of resources consumed.

Yermack’s research of companies that have disclosed the managerial benefit showed that stock prices dropped an average of 2% around the date of initial disclosure of corporate plane use, a loss worth about $150 million for the median firm in the study sample.

Personal aircraft use over the 10-year period increased from an annual rate of 9% in 1993 to above 30% in 2002 and is the most costly and fastest growing fringe benefit enjoyed by major company CEOs, Yermack found.

Yermack’s data are drawn from a panel of 237 large companies featured in the 2002 Fortune 500 ranking of largest U.S. firms from 1993 to 2002.

Yermack’s working paper is available  here .