Knighthoods, Damehoods, and CEO Behaviour

Abstract

We study whether and how politicians can influence the behaviour of CEOs and firm performance with prestigious government awards. We present a simple model to develop the hypothesis that government awards have a negative effect on firm performance. The empirical analysis uses two legal reforms in New Zealand for identification: Knighthoods and damehoods were abolished in April 2000 but reinstated in March 2009. The findings are consistent with the predictions of the model. The results suggest that government awards serve as an incentive tool through which politicians influence firms in favour of employees to the detriment of shareholders.