Download This PaperFortune Favors the Bold
49 Pages Posted: 6 Oct 2013 Last revised: 2 Feb 2016
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
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