Fortune Favors the Bold

Meneghetti, Costanza; Williams, Ryan

doi:10.2139/ssrn.2336063

Fortune Favors the Bold

Journal of Financial and Quantitative Analysis (JFQA), Forthcoming

49 Pages Posted: 6 Oct 2013 Last revised: 2 Feb 2016

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: September 12, 2015

Abstract

We investigate whether incentives to join the Fortune 500 affect corporate decisions. Firms closer to the cutoff appear to take actions to join the list by engaging in more M&A activity, bidding for larger targets, and paying higher takeover premia. Further, the relation is stronger for firms with more-entrenched CEOs and the stock market reaction to bids is worse when bidders are close to Fortune’s cutoff. A 1994 methodological change by Fortune acts as an exogenous shock for identification. Our results suggest that firms try to increase revenues to join the Fortune 500 but that such actions adversely affect shareholders.

Keywords: Agency problems, Executive incentives, Mergers and acquisitions

JEL Classification: G30, J33

Suggested Citation: Suggested Citation

Meneghetti, Costanza and Williams, Ryan, Fortune Favors the Bold (September 12, 2015). Journal of Financial and Quantitative Analysis (JFQA), Forthcoming, Available at SSRN: https://ssrn.com/abstract=2336063 or http://dx.doi.org/10.2139/ssrn.2336063