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Executive Compensation and Corporate Acquisition Decisions
Author(s) -
Datta Sudip,
IskandarDatta Mai,
Raman Kartik
Publication year - 2001
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/0022-1082.00406
Subject(s) - executive compensation , business , payment , mergers and acquisitions , stock (firearms) , equity (law) , stock price , tender offer , accounting , finance , corporate governance , shareholder , mechanical engineering , paleontology , series (stratigraphy) , political science , law , engineering , biology
By examining how executive compensation structure determines corporate acquisition decisions, we document a strong positive relation between acquiring managers' equity‐based compensation (EBC) and stock price performance around and following acquisition announcements. This relation is highly robust when we control for acquisition mode (mergers), means of payment, managerial ownership, and previous option grants. Compared to low EBC managers, high EBC managers pay lower acquisition premiums, acquire targets with higher growth opportunities, and make acquisitions engendering larger increases in firm risk. EBC significantly explains postacquisition stock price performance even after controlling for acquisition mode, means of payment, and “glamour” versus “value” acquirers.