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T he A cquisition of R estructured F irms : A n I llustration of M arket D iscipline ?
Author(s) -
Seward James K.,
Walsh James P.
Publication year - 1994
Publication title -
journal of economics and management strategy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.672
H-Index - 68
eISSN - 1530-9134
pISSN - 1058-6407
DOI - 10.1111/j.1430-9134.1995.00585.x
Subject(s) - chief executive officer , business , restructuring , stock (firearms) , business administration , monetary economics , finance , economics , management , mechanical engineering , engineering
We examine the relationship between chief executive officer (CEO) compensation and acquisition activity subsequent to corporate restructurings in a sample of 152 firms created by a voluntary corporate spin‐off. We also investigate the linkage between these relationships and the stock market reaction to the initial restructuring announcements. Surprisingly, CEO wealth in the form of stock and options is strongly related to friendly and hostile acquisition activity, respectively. Moreover, the stock market appears to anticipate this subsequent acquisition activity. These results ask us to rethink our understanding of the motivational properties of equity ownership and the stock market's reaction to voluntary corporate spin‐off announcements.