Equity Grants to Target CEOs During Deal Negotiations

46 Pages Posted: 5 Oct 2009 Last revised: 8 Mar 2016

See all articles by Shane Heitzman

Shane Heitzman

University of Southern California - Marshall School of Business

Date Written: January 3, 2011

Abstract

I investigate the determinants and consequences of granting equity to the target’s CEO during deal negotiations. These negotiation grants likely reflect information about the acquisition, benefit from the deal premium, and provide more timely bargaining incentives. I find that CEOs are more likely to receive equity during negotiations when they negotiate for the target, particularly when the target has more bargaining power. This suggests that boards use equity to enhance bargaining incentives for CEOs with the most influence over deal price. I find limited evidence that negotiation grants are used as compensation and no evidence that they have a material adverse effect on shareholders.

Keywords: Mergers, Acquisitions, Agency, Negotiation, Compensation, Governance

JEL Classification: G34, J33, K22, M52

Suggested Citation

Heitzman, Shane, Equity Grants to Target CEOs During Deal Negotiations (January 3, 2011). Journal of Financial Economics (JFE), Forthcoming. Available at SSRN: https://ssrn.com/abstract=1482008

Shane Heitzman (Contact Author)

University of Southern California - Marshall School of Business ( email )

701 Exposition Blvd
Los Angeles, CA 90089
United States

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