Decoupling CEO Wealth and Firm Performance: The Case of Acquiring CEOs
We explore whether compensation policies in bidding firms counter or exacerbate agency conflicts by examining CEO pay and incentives around corporate takeovers. We find that even in mergers where bidding shareholders are worse off, bidding CEOs are better off three quarters of the time. In the years following mergers, CEOs of poorly performing firms receive substantial increases in option and stock grants that offset any effect of long-term underperformance on their wealth. As a result, the CEO’s pay and his overall wealth become insensitive to negative stock performance, but his wealth rises in step with positive stock performance. Corporate governance matters; bidding firms with stronger boards retain the sensitivity of their CEOs’ compensation to poor performance following the acquisition. In comparison, we find that CEOs are not rewarded for undertaking major capital expenditures, and that they receive only minor downside protection. Our results highlight that acquisitions are treated differently from other capital investments by the board in setting CEO compensation and our evidence is consistent with the self-serving management hypothesis in corporate acquisitions.
acquisitions capital expenditures corporate governance equity incentives pay-performance sensitivity
Jarrad Harford Kai Li
University of Washington Business School Box 353200 Seattle, WA 98195-3200 Sauder School of Business University of British Columbia 2053 Main Mall, Vancouver, BC V6T 1Z2
国际会议
昆明
英文
2005-07-05（万方平台首次上网日期，不代表论文的发表时间）