Of Mansions and Marriages

When it comes to finance, I could hardly be called an expert; my financial acumen is roughly the equivalent of Homer Simpson's. But I came across some rather interesting articles in Slate that some numbers people might find interesting.

In his article entitled Haunted Mansion, Daniel Gross reports that according to a working paper titled "Where are the Shareholders' Mansions?" David Yermack of New York University and Crocker Liu of Arizona State argue that the bigger the CEO's mansion, the worse their companies' stocks perform.

Gross writes:

Yermack and Liu insist there's a solid academic reason to look through the keyholes. They want to figure out if a mansion purchase signals commitment or cashing out. A CEO who buys a 12,000-square-foot mansion could be showing his intent to stay for the long haul and to bust his butt so that he'll have the cash to pay off the huge mortgage. In which case, you'd expect stocks of the companies where the CEO just bought an obscenely large house to thrive. Buy!

Or the purchase of an absurdly large house could signal entrenchment: The CEO is too comfortable with his position and his personal finances. He has made so much money that he can't really be bothered with running the company. And the willingness to spend gazillions on a house—not to mention the furnishings, artwork, and baubles to fill it—betokens a general inattentiveness to costs. In which case, you'd expect stocks of the companies where the CEO just bought an obscenely large house to fare poorly. Sell!

Then, there's the relatively obscure William McAdoo, the man that Daniel Gross (again!) terms as The Unknown Financial Superhero. The most interesting part of this article deals with the convergence of skill, determination, and, for the lack of a better word, luck, which allowed McAdoo to well, do what he did:

Why did McAdoo triumph? Silber argues that it's because the former railroad executive, who had no formal economics education, thought like a businessman. He acted quickly and decisively, and focused on an exit strategy. Of course, McAdoo could not have succeeded without the support of President Woodrow Wilson, who happened to be his father-in-law. In March 1914, McAdoo had made one of the smartest career moves any executive can make: He got engaged to the boss's daughter.


Picture of Homer Simpson comes courtesy of Zapin.info.