Investment Merits of the World's Most Admired Firms

Abstract

One criterion for Fortune magazine's selection of “the world's most admired firms” is that these firms have the “guts” to “take risks so bold that they may cause shareholders to question their sanity.” The question posed in this article is whether investors would be sane to select these firms for their portfolios. The authors investigate the raw and risk-adjusted returns of the selected industry leaders over single- and multiple-year holding periods prior to and after the survey's release, and test whether an announcement effect occurs around the public release of the survey. The results indicate that while these firms do outperform the S&P 500 over most time periods, their returns do not differ from a more appropriate matched sample, based on market capitalization and SIC codes. There is little evidence of a market reaction to the survey's release.