Premium
Value creation around merger waves: The role of managerial compensation
Author(s) -
Hillier David,
McColgan Patrick,
Tsekeris Athanasios
Publication year - 2020
Publication title -
journal of business finance and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.282
H-Index - 77
eISSN - 1468-5957
pISSN - 0306-686X
DOI - 10.1111/jbfa.12419
Subject(s) - incentive , compensation (psychology) , executive compensation , dispersion (optics) , business , value (mathematics) , enterprise value , mergers and acquisitions , industrial organization , accounting , economics , microeconomics , finance , statistics , psychology , physics , mathematics , psychoanalysis , optics
This paper examines the relation between executive compensation and value creation in merger waves. The sensitivity of CEO wealth to firm risk increases the likelihood of out‐of‐wave merger transactions but has no influence on in‐wave merger frequency. CEOs with compensation linked to firm risk have better out‐of‐wave merger performance in comparison to in‐wave mergers. We also present evidence that cross‐sectional acquirer return dispersion is greater for in‐wave acquisitions. Our results suggest that the underperformance of acquiring firms during merger waves can be attributed in part to ineffective compensation incentives, and appropriate managerial incentives can create value, particularly in non‐wave periods.