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Incentive Effects of Stock and Option Holdings of Target and Acquirer CEOs
Author(s) -
CAI JIE,
VIJH ANAND M.
Publication year - 2007
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/j.1540-6261.2007.01260.x
Subject(s) - business , market liquidity , incentive , stock (firearms) , payment , mergers and acquisitions , monetary economics , finance , accounting , economics , microeconomics , mechanical engineering , engineering
Acquisitions enable target chief executive officers (CEOs) to remove liquidity restrictions on stock and option holdings and diminish the illiquidity discount. Acquisitions also enable acquirer CEOs to improve the long‐term value of overvalued holdings. Examining all firms during 1993 to 2001, we show that CEOs with higher holdings (illiquidity discount) are more likely to make acquisitions (get acquired). Further, in 250 completed acquisitions, target CEOs with a higher illiquidity discount accept a lower premium, offer less resistance, and more often leave after acquisition. Similarly, acquirer CEOs with higher holdings pay a higher premium, expedite the process, and make diversifying acquisitions using stock payment.