CEO Deal-Making Activities and Compensation

55 Pages Posted: 24 Mar 2008 Last revised: 24 Dec 2013

See all articles by Eliezer M. Fich

Eliezer M. Fich

Drexel University - Department of Finance

Laura T. Starks

University of Texas at Austin - Department of Finance

Adam S. Yore

University of Missouri at Columbia - Department of Finance

Date Written: December 3, 2013

Abstract

Using transactions generally overlooked in the compensation literature — joint ventures, strategic alliances, SEOs, and spinoffs — we find that, beyond compensation for increases in firm size or complexity, CEOs are rewarded for their deal-making activities. Boards pay CEOs for the core-motivation of the deal, but also for deal volume. We find that compensating for volume rather than core value creation occurs under weak board monitoring and that in deal-making firms, neither CEO-turnover nor pay-for-performance responds to underperformance. We introduce an input monitoring explanation for these results: boards compensate for deal volume because of their inability to perfectly monitor outputs.

Keywords: Executive Pay, Agency Problems, Joint Ventures, SEOs, Spinoffs, Strategic Alliances

JEL Classification: G30, G34, K22

Suggested Citation

Fich, Eliezer M. and Starks, Laura T. and Yore, Adam S., CEO Deal-Making Activities and Compensation (December 3, 2013). AFA 2009 San Francisco Meetings Paper, Journal of Financial Economics (JFE), Forthcoming, Available at SSRN: https://ssrn.com/abstract=1108593 or http://dx.doi.org/10.2139/ssrn.1108593

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)

Laura T. Starks (Contact Author)

University of Texas at Austin - Department of Finance ( email )

Red McCombs School of Business
Austin, TX 78712
United States
512-471-5899 (Phone)
512-471-5073 (Fax)

Adam S. Yore

University of Missouri at Columbia - Department of Finance ( email )

403 Cornell Hall
Columbia, MO 65211
United States
573-884-1446 (Phone)

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