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Pay for Performance? CEO Compensation and Acquirer Returns in BHCsLiu YangUniversity of Maryland, R. H. Smith School of Business Haluk UnalUniversity of Maryland - Robert H. Smith School of Business Kristina MinnickBentley University January 30, 2010 Abstract: We examine the impact of managerial incentives on acquisitions in the banking industry. We find that banks whose CEOs have higher pay-for-performance sensitivity (PPS) are less likely to engage in value-reducing acquisitions. Conditional on engaging in acquisitions, those higher-PPS banks have significantly better announcement returns: on average these banks outperform the acquirers in the lower-PPS group by $1.4% in a three-day window around the announcement. The positive market reaction can be rationalized by long-term performance. Following acquisitions, banks with high PPS experience greater improvement in their operating performance as measured by ROA.
Number of Pages in PDF File: 39 Keywords: Pay-for-Performance Sensitivity, CEO Compensation, Acquirer Returns JEL Classification: G34, G21 working papers seriesDate posted: March 25, 2008 ; Last revised: April 5, 2011Suggested CitationContact Information
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