CEOs pursue more acquisitions when they don't win awards

When CEOs lose out on awards from business media outlets, they up their game by seeking out more and/or larger acquisitions, according to a recent study featured by Harvard Business Review.

In fact, the study's authors — from Kelley School of Business at Indiana University in Bloomington and Jones School of Business at Rice University in Houston — found CEO's companies up acquisitions by 22 percent in terms of number of transactions and dollars spent if their competitors win an award and they don't. The authors suggest CEOs seek out more acquisitions after losing out because acquisitions tend to garner attention and spur quick company growth.

They also honed in specifically on "runner-up" CEOs — those most likely to have won an award based on firm characteristics and personal characteristics, but who didn't — and found the largest increases in acquisitions were associated with these executives. Unfortunately, the researchers also found the acquisitions conducted after losing out on awards tended to have a more negative financial effect than those conducted pre-award period.

To come to these conclusions, the authors identified more than 200 CEOs from S&P 1500 companies who won an award or were included in a top CEO ranking by Business Week, Financial World Gold/Silver Awards, Forbes, Chief Executive, and Harvard Business Review. They then identified 1,450 CEOs of competitor firms that were not recognized by the media and analyzed acquisition activity for those companies in both the pre- and post-award period.

The researchers suggest boards always investigate CEO motivation before approving mergers and acquisitions and heed CEO emotions.

Read the full article here.

 

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