Tournament Incentives and Acquisition Performance
Review of Corporate Finance Studies, Forthcoming
56 Pages Posted: 25 Jan 2018 Last revised: 17 Feb 2020
Date Written: February 10, 2020
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