Merger Activity and Executive Pay

31 Pages Posted: 9 Apr 2002

See all articles by Sourafel Girma

Sourafel Girma

Nottingham University Business School

Steve Thompson

University of Leicester - Department of Economics

Peter W Wright

University of Sheffield - Department of Economics

Date Written: March 2002


This Paper examines the impact of mergers and acquisitions on the remuneration of the CEOs in a large unbalanced panel of UK firms, over the period 1981-96. We find significant and substantial executive pay increases in excess of those generated by the growth in firm size consequent upon the merger. This is consistent with the view that mergers reveal information about the quality of management that is useful to the firm's remuneration committee. Executive pay is, however, nine times more sensitive to internal growth than to growth as a result of acquisition. Furthermore, there is some evidence that hostile transactions generate smaller pay effects than friendly deals, probably because they are followed, at some remove, by size-reducing divestments. When mergers are distinguished by their impact on shareholder wealth we find that CEOs engaging in 'bad' (i.e. wealth-reducing) acquisitions experience significantly lower remuneration than their counterparts whose deals meet with market approval. This result suggests that shareholder-principals have at least some success in penalising managers for unwarranted empire-building mergers.

Keywords: Mergers, acquisition, executive pay

JEL Classification: J20, J30

Suggested Citation

Girma, Sourafel and Thompson, Steve and Wright, Peter W, Merger Activity and Executive Pay (March 2002). Available at SSRN:

Sourafel Girma (Contact Author)

Nottingham University Business School ( email )

Jubilee Campus
Nottingham, NG8 1BB
United Kingdom
+44 0 115 8466656 (Phone)


Steve Thompson

University of Leicester - Department of Economics ( email )

Department of Economics
Leicester LE1 7RH, Leicestershire LE1 7RH
United Kingdom
+44 116 252 2897 (Phone)

Peter W Wright

University of Sheffield - Department of Economics ( email )

9 Mappin Street
Sheffield, S1 4DT

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
PlumX Metrics