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Do Acquirer CEO Incentives Impact Mergers?David A. BecherDrexel University - Department of Finance Jennifer L. JuergensDrexel University - Department of Finance Jack VogelDrexel University May 2013 Abstract: This paper examines the mechanisms by which CEOs are incentivized and their impact on merger decisions. We argue that CEO ownership and option holdings are not interchangeable and have differing effects on the choice to undertake a merger, merger structure, and ultimately deal performance. Results suggest that CEO ownership aligns incentives; CEOs with higher levels of ownership are less likely to undertake mergers, but when they do, the merger structure and post-merger performance indicate they take on higher quality deals. CEOs with higher option holdings, however, are more likely to enter into deals which have inferior deal characteristics and subsequently lower performance. These results suggest that CEO ownership and option holdings are not substitutes when it comes to incentivizing CEOs, at least around mergers, and may add to the debate on how to best compensate CEOs.
Number of Pages in PDF File: 41 Keywords: Mergers, CEO compensation, CEO ownership, incentive wealth JEL Classification: G32, G34, J33 working papers seriesDate posted: July 25, 2012 ; Last revised: May 1, 2013Suggested CitationContact Information
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