INDIANAPOLIS – A recent study by a business professor at Indiana University finds that the CEOs of major companies target new acquisitions after competitors win awards, but those moves aren’t always well-received by the market.
The study, “Ripple Effects of CEO Awards: Investigating the acquisition activities of superstar CEO’s competitors” by Wei Shi, was published in Strategic Management Journal.
Shi examined CEOs from the Standard & Poor’s 1500 index and found that when industry peers win awards from business media, leaders of companies that did not win tended to purse acquisitions.
“You very likely will compare yourself to that person, saying, ‘OK, what can I do to get that?’ ” Shi said in a release. “Having these awards helps the winner dramatically increase social recognition. This creates a social comparison motivation, as the CEO compares himself or herself to the person who won.”
After a peer wins an award, Shi writes, competing CEOs look to receive similar recognition. One of the most surefire ways to get that is through buying other companies, transactions that are heavily reported.
“Business media will write about them and the firm will grow, increasing social recognition. But such acquisitions may not be in the interest of shareholders,” he says. “As a result, the market reacts more negatively to acquisitions made by such CEOs.”
The article offers a suggestion to shareholders and board directors: “When a CEO is proposing to do a deal, consider its timing. If it’s right after the CEO’s peer wins an award, there may be some personal motives there that could have negative consequences for the firm,” Shi said.
Shi teaches at Indiana University’s Kelley School of Business on the campus of Indiana University-Purdue University Indianapolis. Also contributing to the study were Yan Zhang and Robert Hoskisson of Rice University’s Jesse H. Jones Graduate School of Business.
Pictured: Wei Shi, author of the study.
Copyright 2019 The Business Journal, Youngstown, Ohio.
Published by The Business Journal, Youngstown, Ohio.
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