FortuneFavors the Bold

Abstract

We investigate whether incentives to join theFortune500 affect corporate decisions. Firms closer to the cutoff appear to take actions to join the list by engaging in more mergers and acquisitions activity, bidding for larger targets, and paying higher takeover premia. Further, the relation is stronger for firms with more-entrenched chief executive officers, and the stock market reaction to bids is worse when bidders are close to theFortune500’s cutoff. A 1994 methodological change byFortuneacts as an exogenous shock for identification. Our results suggest that firms try to increase revenues to join theFortune500 but that such actions adversely affect shareholders.