Ripple Effects of CEO Awards: Investigating the Acquisition Activities of Superstar CEOs' Competitors
| DOI | http://doi.org/10.1002/smj.2638 |
| Author | Yan Zhang,Robert E. Hoskisson,Wei Shi |
| Date | 01 October 2017 |
| Published date | 01 October 2017 |
Strategic Management Journal
Strat. Mgmt. J.,38: 2080–2102 (2017)
Published online EarlyView 17 February 2017 in WileyOnline Library (wileyonlinelibrary.com) DOI: 10.1002/smj.2638
Received 10 July 2016;Final revisionreceived 1 January 2017
Ripple Effects of CEO Awards: Investigating the
Acquisition Activities of Superstar CEOs’ Competitors
Wei Shi,1*Yan Zhang,2and Robert E. Hoskisson2
1Kelley School of Business, Indiana University, Indianapolis, Indiana
2Jesse H. Jones Graduate School of Business, Rice University, Houston, Texas
Research summary:This study proposes that CEOs may undertake intensive acquisition activities
to increase their social recognition and status after witnessing their competitors’ winning CEO
awards. Using a sample of U.S. S&P 1,500 rm CEOs, we nd that CEOs engagein more intensive
acquisition activities in the period after their competitors won CEO awards (i.e., postaward
period), compared to the preaward period. Moreover, this effect is stronger when focal CEOs
themselves had a high likelihood of winning CEO awards. Our ndings also show that acquisitions
by focal CEO rms in the postaward period realize lower announcement returns compared to
acquisitions by the same CEOs in the preaward period.
Managerial summary:Each year a few CEOs receiveCEO awards from business media and CEOs
who receive such awards become instant celebrities, that is, superstar CEOs. This study explores
how superstar CEOs’ competitors reactto not winning CEO awards. We nd that superstar CEOs’
competitors undertake more intensive acquisition activities in the postaward period compared
to the preaward period. This is particularly true for competitors who were close, yet did not
win CEO awards. In addition, acquisitions by superstar CEOs’ competitors are associated with
lower announcement returns in the postaward compared to the preaward period. These ndings
collectively indicate that acquisitions may be used as a channel for superstar CEOs’ competitors
to elevate their own social status, but at a cost to shareholders. Copyright © 2017 John Wiley &
Sons, Ltd.
Introduction
Awards, as nonnancial incentives, provide a valu-
able means for motivating people because they
can sharply increase award winners’ social recog-
nition and status. Awards are ubiquitous in social
and economic life, ranging from the Nobel Prizes
in academia to the Academy Awards in the arts
(Frey, 2005; Gallus & Frey, 2016). The focus of
our study is on prestigious awards granted to CEOs.
Organized by major media outlets, CEO awards
Keywords: CEOs; competitors; mergers and acquisitions;
organization awards; social comparison
*Correspondence to: Wei Shi, 801 W. Michigan Street, BS 4020,
Indianapolis, IN 46202. E-mail: ws7@iu.edu
Copyright © 2017 John Wiley & Sons, Ltd.
identify high-performance CEOs and are granted
based on CEOs’ qualications (Wade, Porac, Pol-
lock, & Grafn, 2006). Award-winning CEOs typ-
ically experience a sharp increase in their social
recognition and receive celebrity status as superstar
CEOs (Hayward, Rindova, & Pollock, 2004).
Given the importance of CEOs in rm strategic
decision making (Finkelstein, Hambrick, & Can-
nella, 2009), scholars have shown a great interest
in the inuence of CEO awards on award recip-
ients and their organizations (including other top
managers in award-winning CEOs’ rms) (Cho,
Arthurs, Townsend, Miller, & Barden, 2016; Graf-
n, Wade, Porac, & McNamee, 2008; Malmendier
& Tate, 2009; Wade et al., 2006), but have not
devoted much attention to investigating how CEOs
Ripple Effects of CEO Awards 2081
react to not winning CEO awards. To extend our
insights into CEO awards, this study examines how
award-winning CEOs’ competitors change their
strategic decisions in the postaward period. Werefer
to award-winning CEOs as superstar CEOs (Mal-
mendier & Tate, 2009) andCEOs whose rms com-
pete in the same product markets as superstar CEOs’
rms, but who themselves are not award winners, as
competitor CEOs.
Examining how superstar CEOs’ competitors
react to not winning CEO awards is important
because the number of competitor CEOs far out-
weighs the number of superstar CEOs. We focus
on superstar CEOs’ competitors because CEOs of
competing rms are more attentive to each other’s
performance and achievements (Hsieh, Tsai, &
Chen, 2015; Kim & Tsai, 2012). Thus, competi-
tor CEOs tend to be aware of their superstar CEO
peers’ winning awards. We propose that upward
social comparison with superstar CEOs’ elevated
social recognition and status can motivate competi-
tor CEOs to engage in more intensive acquisition
activities in the postaward period because acquisi-
tions provide an effective and immediate means to
enhance CEO social recognition and status (Avery,
Chevalier, & Schaefer, 1998; Palmer & Barber,
2001; Stearns & Allan, 1996).
We also examine two contingency factors that
may moderate the inuence of superstar CEOs on
competitor CEOs’ acquisitiveness. The rst con-
tingency factor regards product similarity between
superstar CEOs’ and competitor CEOs’ rms. The
second contingency factor is competitor CEOs’
likelihood of winning CEO awards. We examine
these factors because they can inuence the level of
social comparison with superstar CEOs by competi-
tor CEOs. Furthermore, we examine whether acqui-
sitions by competitor CEOs in the postaward period
are received negatively by investors. If competi-
tor CEOs engage in acquisitions in the postaward
period to advance their own social recognition and
status, this would represent a form of agency costs
for shareholders, leading to lower announcement
returns.
By examining the inuence of superstar CEOs
on their competitor CEOs’ acquisition activities,
this study makes the following contributions to the
management literature. First, we provide evidence
regarding the broader implications of CEO awards.
CEO award research has so far focused on the
inuence of CEO awards on award recipients and
their rms (Grafn et al., 2008; Malmendier & Tate,
2009; Wade etal., 2006). This study enriches this
literature by demonstrating that the implications of
CEO awards extend beyondaward winners and their
rms to competitor rms. Second, this study con-
tributes to the organizational award literature by
attesting to awards’ possible negative externality
effects. Organizational award research has devoted
most attention to how awards motivate nonwinners
to perform (Gallus & Frey, 2016). If acquisitions
by competitor CEOs in the postaward period real-
ize lower announcement returns and can harm rm
performance, this would indicate negative external-
ity of CEO awards. Lastly, this study contributes
to a behavioral perspective of acquisition research
by highlighting the role of pursuing social recog-
nition and status in motivating CEOs’ acquisition
activities.
Theory and Hypotheses
Social Comparison Research
Social comparison theory postulates that humans
have an innate drive to evaluate their own sta-
tus to similar others (Festinger, 1954; Masters &
Keil, 1987). Humans tend to select similar com-
parison referents because similarity between the
comparer and the referent reduces the complex-
ity of comparison and gives rise to more precise
information to humans about themselves (Kulik
& Ambrose, 1992). Therefore, individuals tend to
compare themselves with others who share similar
observable factors (e.g., same gender and similar
age) (Kulik & Ambrose, 1992).
Based on comparison direction, social compari-
son can be classied as upward social comparison
in which individuals compare with superior oth-
ers or downward social comparison in which
individuals compare with inferior others (Smith,
2000). These two types of comparison serve
different purposes: upward comparison facilitates
self-evaluation (Collins, 2000; Festinger, 1954) and
helps individuals seek ways to improve themselves
(Collins, 2000), whereas downward comparison
can lead to perceived self-enhancement, helping
individuals increase their self-esteem (Geothals
& Darley, 1977; Wills, 1981). Park and Westphal
(2013) suggest that corporate leaders, a group of
achievement-oriented and status-driven individuals
at the top of the corporate hierarchy, are less
inclined to improve their subjective well-being
Copyright © 2017 John Wiley & Sons, Ltd. Strat. Mgmt. J.,38: 2080–2102 (2017)
DOI: 10.1002/smj
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