Superstar CEOS

56 Pages Posted: 24 Apr 2005

See all articles by Ulrike Malmendier

Ulrike Malmendier

University of California, Berkeley - Department of Economics; University of California, Berkeley - Haas School of Business; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); Institute for the Study of Labor (IZA)

Geoffrey A. Tate

University of Maryland - Robert H. Smith School of Business; National Bureau of Economic Research (NBER)

Multiple version iconThere are 3 versions of this paper

Date Written: February 2, 2005

Abstract

We analyze the impact of winning high-profile tournaments on the subsequent behavior of the tournament winner in the context of chief executive officers of U.S. corporations. We find that the firms of CEOs who achieve "superstar" status via prestigious nationwide awards from the business press subsequently underperform, both relative to the overall market and relative to a sample of "hypothetical award winners" with matching firm and CEO characteristics. At the same time, award-winning CEOs extract significantly more compensation from their company following the award, both in absolute amounts and relative to other top executives in their firm. They also spend significantly more time and effort on public and private activities outside their company such as assuming board seats or writing books. The incidence of earnings management increases significantly after winning awards. Our results suggest that media-induced superstar culture leads to behavioral distortions beyond mere mean reversion. We also find that the effects are strongest in firms with weak corporate governance, suggesting that firms could prevent the negative consequences.

Suggested Citation

Malmendier, Ulrike and Tate, Geoffrey A., Superstar CEOS (February 2, 2005). Available at SSRN: https://ssrn.com/abstract=709861 or http://dx.doi.org/10.2139/ssrn.709861

Ulrike Malmendier (Contact Author)

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Geoffrey A. Tate

University of Maryland - Robert H. Smith School of Business ( email )

MD
United States

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
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