When BusinessWeek and Forbes name their lists of "Best Managers" or "Best Performing CEOs", it could be the kiss of death. Not only for the CEO but the company and investors. That seems to be the finding of a paper by Ulrike Malmendier, assistant professor of economics of the University of California, Berkeley, and Geoffrey Alan Tate, assistant professor of finance at UCLA's Anderson School of Management.

Their paper Superstar CEOs found that award winners' companies underperformed the broader market over the one-, two- and three-year periods following the award. That was in terms of stock returns and returns on assets. But the CEOs did pretty well. They tended to receive higher compensation, mostly equity based, than other CEOs.

So why isn't this underperformance just a reversion to the mean? The researchers look at a peer group of CEOs. Unheralded, but they had similar characteristics to the award winners in terms of company size, book-to-market and returns over the year leading up to an award. The unheralded CEOs' companies underperformed but the award winners' companies underperformed even more. The stock market returns of award-winning CEOs' companies lagged those of their unheralded peers by about 4 per cent per year over the three years following an award.

Another disturbing part finding was that there was more likelihood of earnings management post-award.

So does getting the award change behavior? It certainly does, according to the researchers.

First, there's the matter of being able to extract higher pay.

"superstar status increases the CEO's bargaining power within the firm, enabling him to extract significantly higher rents from the company,'' they write. "We observe that the total compensation of award-winning CEOs increases following their awards, despite the decrease in firm performance."

They note that this happens in companies with bad corporate governance.

Also, superstar CEOs are more likely to indulge in tasks which provide private benefits, but have little (if any) influence on helping the company. They are significantly more likely to author books and sit on outside boards in years after they have won
an award which means they spend less time and energy on running the business.

And superstar CEOs are more likely to manage earnings following the award. As a result, the companies are more likely to experience
negative earnings.