Business chiefs play knights and dames

The prospect of being adorned with a knighthood or damehood pushes chief executives to be nicer to employees and makes them less likely to undertake cost-cutting, which would involve redundancies, in order to remain in favour with the government, media and public, according to a study by Konrad Raff and Linus Siming.

The study focuses on companies in New Zealand, which abolished the old titles in 2000 before reintroducing them in 2009, and found that companies reduced employment numbers and improved profitability once the prospect was taken away.

Net margins increased by 52 per cent when compared with the control group - foreign chief executives that were not eligible for titles.

New Zealand has a very low cost for sacking employees, which makes it easier for companies to cut jobs and increase profits.

''Conversely, the reintroduction of knighthoods and damehoods in 2009 is accompanied by a decline in profitability. Employment appears to be the main channel for quick adjustment in net margin,'' Mr Raff and Mr Linus said.

While the chance of getting a call up from Mr Abbott may reduce profitability for Australian companies, it would be a way for the government to maintain jobs cheaply.

''The politician's preference over the investment diaviates from profit maximisation. Hence, the manager faces a trade off between increasing profitability and receiving the government award. Overall, the award system makes the firm less profitable.''

However, study suggested the chance of bankruptcy increased when managers were sacrificing profits for awards.

Knighthoods and damehoods were abolished by the Hawke government in 1986 and were reintroduced in 2014 by the Abbott government.