Abstract

http://ssrn.com/abstract=2139732
 


 



Contractual Revisions in Compensation: Evidence from Merger Bonuses to Target CEOs


Eliezer M. Fich


Drexel University - Department of Finance

Edward M. Rice


University of Washington - Michael G. Foster School of Business

Anh L. Tran


City University London - Sir John Cass Business School

May 13, 2014


Abstract:     
Do all types of extra payments to target CEOs during acquisitions facilitate a wealth transfer from target shareholders to acquirer shareholders? We examine merger bonuses and document evidence inconsistent with wealth transfer. While we find that premiums to target shareholders are lower when their CEOs get a merger bonus, our tests also show that in these transactions, acquirers pay less but also get less in the form of low synergies. In fact, both stock and accounting returns to the acquirers are lower in deals with target CEO bonuses. This evidence suggests that bonuses are used to revise compensation contracts when takeovers generate small synergy gains, helping firms circumvent conflicts of interests between target CEOs and their shareholders.

Number of Pages in PDF File: 43

Keywords: Merger bonus, Acquisitions, Synergies

JEL Classification: G30, G34, J33

working papers series





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Date posted: September 2, 2012 ; Last revised: May 14, 2014

Suggested Citation

Fich, Eliezer M. and Rice, Edward M. and Tran, Anh L., Contractual Revisions in Compensation: Evidence from Merger Bonuses to Target CEOs (May 13, 2014). Available at SSRN: http://ssrn.com/abstract=2139732 or http://dx.doi.org/10.2139/ssrn.2139732

Contact Information

Eliezer M. Fich
Drexel University - Department of Finance ( email )
LeBow College of Business
3220 Market Street – 11th Floor
Philadelphia, PA 19104
(215) 895-2304 (Phone)
Edward M. Rice (Contact Author)
University of Washington - Michael G. Foster School of Business ( email )
Box 353200
Seattle, WA 98195-3200
United States
Anh L. Tran
City University London - Sir John Cass Business School ( email )
106 Bunhill Row
London, EC1Y 8TZ
United Kingdom
+44-207-040-5109 (Phone)
+44-207-040-8881 (Fax)
HOME PAGE: http://www.cass.city.ac.uk/experts/A.Tran
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