Does Equity-Based Compensation Make CEOs More Acquisitive?

47 Pages Posted: 1 Jul 2014 Last revised: 23 Aug 2019

See all articles by Thomas Jason Boulton

Thomas Jason Boulton

Miami University

Marcus V. Braga-Alves

Pace University

Frederik P. Schlingemann

University of Pittsburgh - Finance Group; Erasmus University Rotterdam (EUR) - Rotterdam School of Management (RSM)

Date Written: May 1, 2014

Abstract

Theory is conflicted on the impact of equity-based compensation on managerial risk taking. We explore this issue by studying the relation between equity-based compensation and firms’ propensity to make acquisitions. Consistent with the notion that equity-based compensation encourages managerial risk taking, we report a positive relation between equity-based compensation and CEO acquisitiveness. Additionally, we find that the number of acquisitions, acquisition size, use of equity as payment, and the propensity to acquire private firms are all positively associated with equity-based compensation. Abnormal returns around acquisition announcements suggest that the impact of equity-based compensation is not uniformly positive for acquiring-firm shareholders.

Keywords: Executive compensation, mergers and acquisitions, risk taking

JEL Classification: G35

Suggested Citation

Boulton, Thomas Jason and Braga-Alves, Marcus V. and Schlingemann, Frederik Paul, Does Equity-Based Compensation Make CEOs More Acquisitive? (May 1, 2014). Journal of Financial Research, Vol. 37, No. 3, 2014; Pace University Finance Research Paper. Available at SSRN: https://ssrn.com/abstract=2460635

Thomas Jason Boulton (Contact Author)

Miami University ( email )

3028 Farmer School of Business
Oxford, OH 45056
United States
(513) 529-1563 (Phone)
(513) 529-8598 (Fax)

Marcus V. Braga-Alves

Pace University ( email )

1 Pace Plaza
New York, NY 10038-1502
United States

Frederik Paul Schlingemann

University of Pittsburgh - Finance Group ( email )

368A Mervis Hall
Pittsburgh, PA 15260
United States
(412) 648 1847 (Phone)
(412) 648 1693 (Fax)

Erasmus University Rotterdam (EUR) - Rotterdam School of Management (RSM) ( email )

P.O. Box 1738
Room T08-21
3000 DR Rotterdam, 3000 DR
Netherlands

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