Why Do Managers Undertake Acquisitions? An Analysis of Internal and External Rewards for Acquisitiveness
Harvard University - Harvard Kennedy School (HKS); National Bureau of Economic Research (NBER)
Judith A. Chevalier
Yale School of Management; National Bureau of Economic Research (NBER)
University of Utah - Department of Finance
Journal of Law, Economics, and Organization, Vol. 14 No. 1, Spring 1998
We study the effects of a firm's acquisitions on the subsequent career of its chief executive officer (CEO) by examining a sample of executives who undertook large acquisitions between 1986 and 1988. We find that acquirers do not have significantly different compensation growth from executives who did not undertake acquisitions. Further, we find the effect of acquisitions on compensation does not depend on whether the acquisition increased shareholder wealth, nor on whether the acquisition was diversifying. We do find a benefit to acquisitions, however, because CEOs who completed acquisitions are significantly more likely to gain outside directorships than those who did not complete acquisitions. Our results do not support the argument that CEOs have an incentive to pursue acquisitions in order to increase their own compensation, but lend support to the argument that CEOs have an incentive to pursue acquisitions to increase their prestige and standing in the business community.
JEL Classification: G34Accepted Paper Series
Date posted: February 16, 1998
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