Superstar CEOs

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 beyond mere mean reversion, 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.