Fortune Favors the Bold
42 Pages Posted: 18 Mar 2012 Last revised: 12 Jun 2012
Date Written: March 15, 2012
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: Suggested Citation