On the Importance of Golden Parachutes
55 Pages Posted: 25 Jun 2009 Last revised: 23 Jul 2015
Date Written: July 16, 2012
Abstract
In acquisitions, target CEOs face a moral hazard: any personal gain from the deal could be offset by the loss of the future compensation stream associated with their jobs. Larger, more important, parachutes provide greater relief for these losses. To explicitly measure the moral hazard target CEOs face, we standardize the parachute payment by the expected value of their acquisition-induced lost compensation. We examine 851 acquisitions from 1999-2007, finding that more important parachutes benefit target shareholders through higher completion probabilities. Conversely, as parachute importance increases, target shareholders receive lower takeover premia while acquirer shareholders capture additional rents from target shareholders.
Keywords: Golden Parachutes, Acquisitions, Moral Hazard, Reservation Premium
JEL Classification: D82, G34, J33
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Contractual Versus Actual Severance Pay Following CEO Departure
By Peggy Huang and Eitan Goldman
-
Marital Prenups? A Look at CEO Severance Agreements
By Peggy Huang
-
Marital Prenups? A Look at CEO Severance Agreements
By Peggy Huang
-
Marital Prenups? A Look at CEO Severance Agreements
By Peggy Huang
-
Contractual Versus Actual Severance Pay Following CEO Turnover
By Eitan Goldman and Peggy Huang
-
Contractual Versus Actual Severance Pay Following CEO Turnover
By Peggy Huang and Eitan Goldman
-
How do Ex-Ante Severance Pay Contracts Fit into Optimal Executive Incentive Schemes?
By P. Raghavendra Rau and Jin Xu
-
How Do Ex-Ante Severance Pay Contracts Fit into Optimal Executive Incentive Schemes?
By P. Raghavendra Rau and Jin Xu
-
How Do Ex-Ante Severance Pay Contracts Fit into Optimal Executive Incentive Schemes?
By P. Raghavendra Rau and Jin Xu
-
Golden Parachutes and the Wealth of Shareholders
By Lucian A. Bebchuk, Alma Cohen, ...