Does Threat of Dismissal Constrain Acquisition Premium in CEO Pay?

23 Pages Posted: 18 Jan 2016

Date Written: December 2015

Abstract

This paper shows that the likelihood of post‐acquisition CEO turnover can act as a constraint on risky acquisition decisions. The acquisition premium in pay decreases by over 50% once the dismissal risk is controlled for. Given a smaller pay premium for undertaking acquisitions and a non‐zero risk of dismissal, shareholders are shown to be able to exercise some control over managerial incentives to engage in risky acquisitions through the mechanism for dismissal.

Suggested Citation

HomRoy, Swarnodeep, Does Threat of Dismissal Constrain Acquisition Premium in CEO Pay? (December 2015). Economica, Vol. 82, pp. 1349-1371, 2015, Available at SSRN: https://ssrn.com/abstract=2716507 or http://dx.doi.org/10.1111/ecca.12163

Swarnodeep HomRoy (Contact Author)

University of Groningen ( email )

Nettlebosje 2
Department of Economics, Econometrics and Finance
Groningen, Groningen 9747 AE
Netherlands

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