Accelerated Vesting in Takeovers: The Impact on Shareholder Wealth

Financial Management, Forthcoming

47 Pages Posted: 23 Dec 2011  

Susan Elkinawy

Loyola Marymount University - Department of Finance and Computer Information Systems

David Offenberg

Loyola Marymount University - Department of Finance

Date Written: November 7, 2011

Abstract

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

Elkinawy, Susan and Offenberg, David, Accelerated Vesting in Takeovers: The Impact on Shareholder Wealth (November 7, 2011). Financial Management, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1975962

Susan Elkinawy

Loyola Marymount University - Department of Finance and Computer Information Systems ( email )

Los Angeles, CA 90045
United States

David Offenberg (Contact Author)

Loyola Marymount University - Department of Finance ( email )

1 LMU Dr.
MS 8385
Los Angeles, CA 90045
United States

HOME PAGE: http://cba.lmu.edu/faculty?expert=david.offenbergphd

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