Working Paper: NBER ID: w14140
Authors: Ulrike Malmendier; Geoffrey Tate
Abstract: Compensation, status, and press coverage of managers in the U.S. follow a highly skewed distribution: a small number of 'superstars' enjoy the bulk of the rewards. We evaluate the impact of CEOs achieving superstar status on the performance of their firms, using prestigious business awards to measure shocks to CEO status. We find that award-winning CEOs subsequently underperform, both relative to their prior performance and relative to a matched sample of non-winning CEOs. At the same time, they extract more compensation following the award, both in absolute amounts and relative to other top executives in their firms. They also spend more time on public and private activities outside their companies, such as assuming board seats or writing books. The incidence of earnings management increases after winning awards. The effects are strongest in firms with weak governance, even though the frequency of obtaining superstar status is independent of corporate governance. Our results suggest that the ex-post consequences of media-induced superstar status for shareholders are negative.
Keywords: CEO awards; superstar status; corporate performance; corporate governance; earnings management
JEL Codes: D21; D23; G14; G34; J33; M52
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| CEO awards (M12) | firm performance (L25) |
| CEO awards (M12) | CEO compensation (M12) |
| CEO compensation (M12) | firm performance (L25) |
| CEO awards (M12) | earnings management (M52) |
| firm governance quality (G38) | firm performance (L25) |