Sales of Private Firms and the Role of CEO Compensation
48 Pages Posted: 17 Jun 2013 Last revised: 1 Mar 2017
Date Written: December 31, 2016
We analyze the relation of private firms’ CEO compensation with the probability of sale of a firm and its valuation at the time of the sale. Specifically, we study whether equity-based remuneration is consistent with compensating the CEO for effort related to selling the private firm, or with compensating for the illiquidity of the equity-based compensation for private firms. Using a sample of large private firms with public filings, we find that CEOs of IPO and acquired private firms have higher total and equity-based compensation than CEOs of firms that remain private. We also show that CEO compensation is positively related to the valuation premium of IPOs versus acquired firms.
Keywords: private firms, mergers and acquisitions, initial public offerings, CEO compensation
JEL Classification: G34
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