DealLawyers.com Blog

This Harvard Business Review article says that if your CEO doesn’t win the “Most Awesome CEO in Greater Dubuque” award that they’re up for this year, you’re likely going on a buying spree:

We created a model to estimate each CEO’s chance of winning an award, based upon firm characteristics (such as firm size, accounting performance, stock performance, advertising intensity), CEO characteristics (such as gender, age, and tenure), and the number of acquisitions conducted in the prior two years. Not surprisingly, we found that “runner up” CEOs – or those who would seem more likely to win but didn’t – were associated with the biggest increases in the number and value of acquisitions conducted in the post-award period. This suggests that “runner up” competitor CEOs may feel worse about losing out on an award than other competitor CEOs.

So how did these “I’ll show you guys!” deals work out?  Not so well:

We found that acquisitions conducted by CEOs after losing awards had a more detrimental effect on firm accounting performance than those conducted in the pre-award period. Specifically, acquisitions conducted by competitor CEO firms in the post-award period negatively influenced return on assets more than those conducted by the same firms in the pre-award period. In addition, acquisitions conducted in the post-award period were received more negatively by stock market. This suggests that these acquisitions were rushed through without sufficient due diligence.

– John Jenkins