Fortune Favors the Bold

42 Pages Posted: 18 Mar 2012 Last revised: 12 Jun 2012

See all articles by Costanza Meneghetti

Costanza Meneghetti

Colorado State University, Fort Collins - Department of Finance & Real Estate

Ryan Williams

University of Arizona - Department of Finance

Date Written: March 15, 2012

Abstract

We investigate whether prestige generated from inclusion in the annual Fortune 500 ranking affects corporate decision making. We find that firms near the 500th spot on the Fortune 500 list are more likely to engage in size/revenue-increasing behavior, potentially in an attempt to join or remain in the list. Specifically, these firms are more likely to make M&A bids, appear to “over-advertise,” and are more likely to restate earnings due to revenue recognition problems. Additionally, returns around the announcement of a bid are lower when bidders are close to Fortune’s cutoff. Our results suggest that managers respond to non-monetary incentives such as the prestige associated with the Fortune 500, but responding to such incentives adversely affects shareholders.

Keywords: Agency problems, Executive incentives

JEL Classification: G30, J33

Suggested Citation

Meneghetti, Costanza and Williams, Ryan, Fortune Favors the Bold (March 15, 2012). AFA 2013 San Diego Meetings Paper. Available at SSRN: https://ssrn.com/abstract=2023992 or http://dx.doi.org/10.2139/ssrn.2023992

Costanza Meneghetti (Contact Author)

Colorado State University, Fort Collins - Department of Finance & Real Estate ( email )

Fort Collins, CO 80523
United States

Ryan Williams

University of Arizona - Department of Finance ( email )

McClelland Hall
P.O. Box 210108
Tucson, AZ 85721-0108
United States

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