FIN-04-008

Flights of Fancy: Corporate Jets, CEO Perquisites, and Inferior Shareholder Returns

April 2004   Revised September 2004

David Yermack

ABSTRACT
This paper studies perquisites of major company CEOs, focusing on personal use of company planes. For firms that have disclosed this managerial benefit, average shareholder returns underperform market benchmarks by more than 4 percent annually, a severe gap far exceeding the costs of resources consumed. Around the date of the initial disclosure, firms’ stock prices drop by an average of 2 percent. Regression analysis finds negative associations between CEOs’ personal aircraft use and their compensation and percentage ownership, in accord with Jensen- Meckling (1976) and Fama (1980), but both relations have small magnitude.

David Yermack
Institution: Stern School of Business, New York University
Phone: (212) 998-0357
Fax: (212) 995-4220
Email: dyermack@stern.nyu.edu
Home Page: http://www.stern.nyu.edu/~dyermack/

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