41 Pages Posted: 26 Sep 2010 Last revised: 25 Sep 2016
Date Written: August 15, 2016
I examine whether changes in CEO status affect risk-related business decisions. I use prestigious awards as shocks to CEO status relative to other CEOs. Firms with award-winning CEOs decrease their idiosyncratic volatility, and their industry betas converge towards one. These firms also reduce their spending on research and development, while increasing investment in fixed assets relative to a matched sample of firms with non-winning CEOs. The evidence suggests that CEOs who reach higher status become more concerned about poor relative performance. By conforming to other firms in their industry, CEOs with the highest reputation can lock-in their relative advantage.
Keywords: Managerial Risk Taking, Relative Concerns, Reputation
JEL Classification: G30, G32
Suggested Citation: Suggested Citation
By Kevin Murphy