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DOES EQUITY‐BASED COMPENSATION MAKE CEOS MORE ACQUISITIVE?
Author(s) -
Boulton Thomas J.,
BragaAlves Marcus V.,
Schlingemann Frederik P.
Publication year - 2014
Publication title -
journal of financial research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.319
H-Index - 49
eISSN - 1475-6803
pISSN - 0270-2592
DOI - 10.1111/jfir.12037
Subject(s) - equity (law) , equity risk , private equity firm , business , shareholder , compensation (psychology) , private equity , club deal , executive compensation , equity capital markets , private equity fund , payment , monetary economics , finance , economics , corporate governance , psychology , social psychology , political science , law
Theory is conflicted on the impact of equity‐based compensation on managerial risk taking. We explore this issue by studying the relation between equity‐based compensation and firms' propensity to make acquisitions. Consistent with the notion that equity‐based compensation encourages managerial risk taking, we report a positive relation between equity‐based compensation and CEO acquisitiveness. Additionally, we find that the number of acquisitions, acquisition size, use of equity as payment, and propensity to acquire private firms are all positively associated with equity‐based compensation. Abnormal returns around acquisition announcements suggest that the impact of equity‐based compensation is not uniformly positive for acquiring‐firm shareholders.