Winning by Losing: How CEO Wealth Changes Around Seasoned Equity Offerings
California State University, Fullerton; University of Iowa - Department of Finance
University of North Dakota - College of Business & Public Administration
July 13, 2008
We develop a methodology to decompose CEO wealth into three major components: pure price effect, board compensation effect, and CEO's own portfolio adjustment effect. Using this decomposition we examine how CEO wealth changes around SEOs. We find that in contrast to shareholders, CEOs actually gain. We document that CEO wealth gains are predominantly due to increased pay following SEOs. We also find that CEO wealth gains are more pronounced for CEOs who experience a larger price decline in their existing equity holdings. Additional results suggest that CEO wealth gains are highly associated with CEO power, market condition changes and CEO's opportunity cost of undertaking SEOs. In comparison, CEOs are not rewarded for undertaking debt issuance.
Number of Pages in PDF File: 47
Keywords: Executive compensation, Wealth decomposition, SEO, Bond issuance
JEL Classification: G32, G34, J33working papers series
Date posted: July 21, 2008 ; Last revised: August 10, 2008
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