Tournament Incentives and Acquisition Performance

Hasan, Iftekhar; Navone, Marco A.; To, Thomas Y.; Wu, Eliza

doi:10.2139/ssrn.3109146

Tournament Incentives and Acquisition Performance

Review of Corporate Finance Studies, Forthcoming

56 Pages Posted: 25 Jan 2018 Last revised: 17 Feb 2020

See all articles by Iftekhar Hasan

Iftekhar Hasan

Fordham University ; Bank of Finland; University of Sydney

Marco A. Navone

Finance Discipline Group - UTS Business School; Bocconi University - CAREFIN - Centre for Applied Research in Finance; Financial Research Network (FIRN)

Eliza Wu

The University of Sydney - Business School; Financial Research Network (FIRN)

Date Written: February 10, 2020

Abstract

This paper examines the impact of promotion-based tournament incentives on corporate acquisition performance. Measuring tournament incentives as the compensation ratio between the CEO and other senior executives, we show that acquirers with greater tournament incentives experience lower announcement returns. Further analysis shows that the negative effect is driven by the risk-seeking behavior of senior executives induced by tournament incentives. Our results are robust to alternative identification strategies. Our evidence highlights that senior executives also play an influential role in acquisition decisions in addition to the CEO.

Keywords: Tournament Incentives, Executive Compensation, Corporate Acquisitions, Promotion-based Incentives

JEL Classification: G34, J31, J33

Suggested Citation: Suggested Citation

Hasan, Iftekhar and Navone, Marco A. and To, Thomas Yin and Wu, Eliza, Tournament Incentives and Acquisition Performance (February 10, 2020). Review of Corporate Finance Studies, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3109146 or http://dx.doi.org/10.2139/ssrn.3109146