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THE EFFECTS OF MUTUAL FUNDS ON M&A COMPENSATION
Author(s) -
Bick Patty,
Crook Matthew D.
Publication year - 2018
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.12139
Subject(s) - mutual fund , chief executive officer , business , open end fund , shareholder , expropriation , voting , executive compensation , economic rent , closed end fund , compensation (psychology) , fund of funds , fund administration , finance , monetary economics , economics , microeconomics , institutional investor , market liquidity , management , market economy , corporate governance , psychology , politics , political science , psychoanalysis , law
Motivated by shareholders’ interest in combating executive wealth expropriation through the merger and acqusition (M&A) process, we study how mutual funds influence firm behavior around an acquisition through votes against management proposals. We find that mutual funds reduce the chief executive officer's ability to extract rents during the M&A process by voting against management‐sponsored compensation proposals after the acquisition, thus lowering both excess compensation and increasing pay‐for‐performance sensitivity. Furthermore, mutual fund voting magnifies the impact on negatively performing firms and firms with a larger amount of the mutual fund's holdings in the firm.