Executive Personal Jet Use and Agency Costs: The Practice of Time‐Share Reimbursement

ABSTRACT Time‐share agreements (time‐shares) are an unexplored form of executives' personal use of corporate aircraft. Relative to jet perquisites (jet perks), time‐shares require reimbursement yet have limited disclosure, which practitioners promote to reduce scrutiny. This trade‐off engenders ambiguity and agency concerns about the associated effort managers devote to maximize shareholder wealth. Among S&P 500 firms from 2004 to 2017, we find that time‐share use, alone or combined with jet perks, has grown. Further, from 2007 to 2017, our primary empirical analysis shows that lower future firm profitability and value coincide with time‐shares, but only when combined with jet perks; these outcomes are higher for firms that offer only time‐shares. Changes analysis also supports that higher (lower) shareholder wealth coincides with a switch to time‐shares (jet perks). To further disentangle time‐shares from jet perks, we examine variation in time‐share disclosure attributes; consistent with initial inferences, more robust time‐share disclosure coincides with higher shareholder wealth. Finally, we explore the possibility that shareholders bear some costs that offset reimbursement and find only modest increases in cash compensation following time‐share initiation. Collectively, our findings imply that agency issues are lower for company stakeholders when firms do not award jet perquisites and instead use time‐share agreements.