Knighthoods, Damehoods, and CEO Behaviour
Norwegian School of Economics (NHH)
Bocconi University - Department of Finance; Bocconi University - IGIER - Innocenzo Gasparini Institute for Economic Research
December 26, 2014
We study whether and how politicians can influence the behaviour of CEOs and firm performance with prestigious government awards. We present a simple model to develop the hypothesis that government awards have a negative effect on firm performance. The empirical
analysis uses two legal reforms in New Zealand for identification: Knighthoods and damehoods were abolished in April 2000 but reinstated in March 2009. Only CEOs with New Zealand citizenships were affected by these legal reforms as CEOs without New Zealand citizenship were never eligible for these awards. We find significant changes in firm behaviour and performance around the two legal reforms. When titular honours are cancelled in 2000, affected firms reduce employment while their profitability and the productivity of their employees increases. Conversely, the reintroduction of knighthoods and damehoods in 2009 is accompanied by a decline in profitability and labour productivity while the number of employees increases. The findings are consistent with the predictions of the model and suggest that government awards serve as an incentive tool through which politicians influence firms in favour of employees to the detriment of shareholders.
Number of Pages in PDF File: 33
Keywords: Awards, CEO Incentives, Employment, Stakeholder-oriented Firms
JEL Classification: G30, J33, J38
Date posted: April 5, 2014 ; Last revised: December 26, 2014
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