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Study: CEOs' Corporate Jets Put Their Stocks In A Tailspin

By Agence France-Presse U.S. chief executives who use luxury corporate jets are plunging their companies' stock into a downward tailspin despite widespread shareholder concern about boardroom excess, according to a study released April 13. Corporate jet use represents the "most costly and fastest growing, fringe benefit" enjoyed by chief executives, it found. The study, "Flights of Fancy: Corporate Jets, CEO Perquisites, and Inferior Shareholder Returns," by New York University Stern School of Business Professor David Yermack found average shareholder gains underperformed market benchmarks at companies where the chief executive flies by Lear jet. Yermack's research reveals that although some of America's biggest corporate names have publicly adopted stricter corporate governance standards, the sky's the limit as far as corporate jet use is concerned. "The central result of this study is that CEO's personal use of company aircraft is associated with severe and significant under-performance of their employers' stock," Yermack wrote. "Firms' stock prices drop an average of two percent around the date of initial disclosure of corporate plane use." Private aircraft use soared in the nine years to 2002 from an annual rate of 9% in 1993 to over 30% in 2002, according to the study, which focused on 237 large companies featured in the 2002 Fortune 500 ranking of the biggest U.S. firms. Yermack said the "inverse" relation between private jet use and a company's share price appears much larger than can be explained by the simple cost of the resources needed to keep a jet airborne. "One might conjecture the CEOs who consume excessive perks may be less likely to work hard, less protective of the company's assets, or more likely to tolerate bloated or inefficient cost structures," the study noted. Copyright Agence France-Presse, 2004

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