Accelerated Vesting in Takeovers: The Impact on Shareholder Wealth
Financial Management, Forthcoming
47 Pages Posted: 23 Dec 2011
Date Written: November 7, 2011
We study the impact of accelerated vesting of equity awards on takeovers, whereby the restricted stock and/or stock options of the target CEO immediately vest and become unrestricted upon the close of the acquisition. We find that takeover premiums are significantly larger when the target CEO receives the benefit of accelerated vesting as compared to target firms with CEO’s that continue to vest in their awards after the deal closes. Our evidence suggests that these cash windfalls triggered by accelerated vesting are beneficial to shareholders in completed deals. Accelerated vesting appears to be an efficient form of ex-ante managerial contracting.
Keywords: Executive Compensation, Accelerated Vesting, Stock Options, Restricted Stock, Takeovers
JEL Classification: G00, G30, G34, G39, J30, J33, M52, H32
Suggested Citation: Suggested Citation