Berkeley Program in Law and Economics

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 mean reversion. The underperformance of the company stock holds both relative to the overall market and relative to a sample of ”hypothetical award winners” with matching firm and CEO characteristics. We also find underperformance in accounting returns. At the same time, award-winning CEOs extract significantly higher compensation 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. Our results suggest that media-induced superstar culture leads to behavioral distortions. The distortions are strongest in firms with weak corporate governance, suggesting that firms could prevent the negative consequences.