A recent study of publicly-traded CEO homes found a correlation between the size of the CEO's home and the company's stock price. It may come as a surprise to some, but the larger and more luxurious the CEO's home is, the poorer the company's stock tends to fare.

Many market-beaten dot com survivors will easily recall failed WorldCom CEO Bernard Ebber's luxurious Mississippi manse, the ultra-luxe home and furnishings of Tyco's Dennis Kozlowski, and the excesses of Houston-based Enron execs Kenneth Lay and Jeff Skilling. All were living very high just prior to the fall of their companies and stock prices. It was a bitter pill for many shareholders left with little to show for their invested money and trust.

This study of CEO home size and stock performance is an interesting one, with credit going to Arizona State Crocker Liu and New York University's David Yermack. They allow that the purchase of a supersized luxury home could be a sign of long term commitments to both the company and the community in which they are buying. But in light of recent history, other motives could be afoot:

It could also mean that the executives view the home as more important than the company which supports them.

The authors discovered that many CEO's sell company stock just prior to its peak and  then use the proceeds to purchase their new luxury home along with the requisite luxury furnishings. It is a pattern that has been sadly witnessed before.

It appears that around one third of the 488 purchasing CEO's studied seem to have exercised stock options and sold shares in the 12 months before buying their homes. And in most cases, the shares peaked just before the luxury home was purchased.

The study shows that at the end of 2004, the median home price of CEO home purchases was $2.7 million. And with the rise in luxury home pricing since that time, it would be safe to say that the median prices have escalated handsomely in the three years since.

A tip of the hat to Richard Beck, Associated Press