In the past, investors rarely cared much about off-the-job spending by CEOs. Who cared if the top dogs indulged in a yacht or Ferrari? It's their money, they can do what they want, right?

New research suggests that the yacht and Ferrari habits of CEOs could indeed be relevant to investors.

A National Bureau of Economic Research working paper by Robert Davidson, Aiyesha Dey and Abbie J. Smith found that companies run by free-spending CEOs are more likely to have accounting fraud, financial restatements and value-destroying deals.

Specifically, the paper looked at CEOs who owned a boat larger than 25 feet, a car priced at more than $75,000 or a home valued at more than twice the local median average. These CEOs, labeled “un-frugals,” were more likely to have material reporting errors at the companies they ran or other financial problems.

Think Dennis Kozlowski of Tyco

or Sanjay Kumar of Computer Associates, both of whom had large homes and yachts.

By contrast, frugal CEOs were more likely to have tighter financial controls and reporting systems at their companies, according to the research.

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