Pay for Performance? CEO Compensation and Acquirer Returns in BHCs

39 Pages Posted: 25 Mar 2008 Last revised: 14 Sep 2014

Liu Yang

University of Maryland, R. H. Smith School of Business

Haluk Unal

University of Maryland - Robert H. Smith School of Business

Kristina Minnick

Bentley University

Multiple version iconThere are 2 versions of this paper

Date Written: January 30, 2010

Abstract

We examine the impact of managerial incentives on acquisitions in the banking industry. We find that banks whose CEOs have higher pay-for-performance sensitivity (PPS) are less likely to engage in value-reducing acquisitions. Conditional on engaging in acquisitions, those higher-PPS banks have significantly better announcement returns: on average these banks outperform the acquirers in the lower-PPS group by $1.4% in a three-day window around the announcement. The positive market reaction can be rationalized by long-term performance. Following acquisitions, banks with high PPS experience greater improvement in their operating performance as measured by ROA.

Keywords: Pay-for-Performance Sensitivity, CEO Compensation, Acquirer Returns

JEL Classification: G34, G21

Suggested Citation

Yang, Liu and Unal, Haluk and Minnick, Kristina, Pay for Performance? CEO Compensation and Acquirer Returns in BHCs (January 30, 2010). Available at SSRN: https://ssrn.com/abstract=1108721 or http://dx.doi.org/10.2139/ssrn.1108721

Liu A. Yang

University of Maryland, R. H. Smith School of Business ( email )

4420 Van Munching Hall
R.H.Smith School of Business
College Park, MD 20742
United States
3014058794 (Phone)

Haluk Unal

University of Maryland - Robert H. Smith School of Business ( email )

College Park, MD 20742-1815
United States
301-405-2256 (Phone)
301-405 0359 (Fax)

Kristina Minnick (Contact Author)

Bentley University ( email )

175 Forest Street
Waltham, MA 02154
United States

HOME PAGE: http://www.profminnick.com/

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