Study considers ripple effects of CEO awards

  • Feb. 13, 2017


INDIANAPOLIS -- As the CEO of a major company, if your initial reaction after a competitor wins an award is to undertake more intensive acquisition activities, you might want to think again.

A study recently accepted for publication in Strategic Management Journal considers the reaction of CEOs who have seen their competitors win awards from business media but have not themselves received an award.

Titled "Ripple Effects of CEO Awards: Investigating the Acquisition Activities of Superstar CEOs' Competitors," the study is authored by Wei Shi, assistant professor of management at the Indiana University Kelley School of Business on the campus of Indiana University-Purdue University Indianapolis, and Yan Zhang and Robert E. Hoskisson, both of Rice University's Jesse H. Jones Graduate School of Business.

Using a sample of CEOs from the Standard & Poor's 1500 index, the researchers found that CEOs tend to target more acquisitions in the time period after seeing their competitor win an award.

"If your direct competitor for a job or a close peer wins something and you don't, you very likely will compare yourself to that person, saying, 'OK, what can I do to get that?'" Shi said. "Having these awards helps the winner dramatically increase social recognition. This creates a social comparison motivation, as the CEO compares himself or herself to the person who won."

While these acquisitions may have provided a way for the CEOs who have not won an award to enhance their social status, researchers found the market reacts negatively to these particular acquisitions. Therefore, Shi said, it is not in the best interest of shareholders or the firm for a CEO to undertake more acquisitions in the time period after he or she does not win an award, as those acquisitions could be driven by the CEO's motivation to enhance social status instead of creating value for shareholders.

"Award winners' competitors might have used acquisitions to increase their own social recognition and social status," Shi said. "Why acquisitions? Business media will write about them, and the firm will grow, increasing social recognition. But such acquisitions may not be in the interest of shareholders. As a result, the market reacts more negatively to acquisitions made by such CEOs."

The study's authors say both shareholders and board directors can learn from the research. As a board director considers whether an acquisition is a good or bad move, he or she needs to look at the specific situation before approving it, Shi said.

Shi recommends the following to board directors: "When a CEO is proposing to do a deal, consider its timing. If it's right after the CEO's peer wins an award, there may be some personal motives there that could have negative consequences for the firm."

About the IU Kelley School of Business Indianapolis

The IU Kelley School of Business has been a leader in American business education for more than 95 years. With over 107,000 living alumni and an enrollment of more than 10,500 students across two campuses and online, the Kelley School is among the premier business schools in the country. Kelley Indianapolis -- based on the IUPUI campus -- is home to a full-time undergraduate program and four graduate programs, including master's programs in accounting and taxation, the Business of Medicine MBA for physicians, and the Evening MBA, which is ranked sixth in the country by U.S. News & World Report. Learn more at

Richard Schneider