When Is Good News Bad and Vice Versa? The Fortune Rankings of America's Most Admired Companies
58 Pages Posted: 24 Jul 2015 Last revised: 28 Jan 2017
Date Written: January 27, 2017
Prior theory postulates that media coverage can increase (decrease) the value of a manager’s reputational capital and, as a consequence, enhance (diminish) his power to extract corporate resources for private consumption. An empirical implication that follows is that media events that increase (decrease) a manager’s reputational capital are good (bad) news for the CEO and bad (good) news for shareholders. We examine these predictions using increases and decreases in Fortune’s rankings of America’s Most Admired Companies as a measure of media-induced changes in CEO’s reputational capital. Consistent with the predictions, we find that increases (decreases) in ranking scores are associated with stock price decreases (increases). Further, and also consistent with the predictions, CEOs whose firms experience increases (reductions) in ranking scores experience increases (reductions) in compensation and in job tenure, and their firms undertake more (fewer) acquisitions and the acquisitions are less (more) value increasing.
Keywords: Corporate Media Ranking; Corporate Value; CEO Compensation; CEO Turnover; Acquisitions
JEL Classification: G31; G32; G34
Suggested Citation: Suggested Citation