The Bright Side of Giving Managers Short-Horizon Incentives

45 Pages Posted: 26 Nov 2019 Last revised: 17 Dec 2019

See all articles by Mehmet Cihan

Mehmet Cihan

University of Connecticut

Ahmet M. Tuncez

Adrian College

Date Written: December 16, 2019


Managers with short-term incentive horizons are significantly less likely to acquire other firms. When firms with shorter incentive packages make an announcement of an M&A deal, both the short-term and long-term abnormal returns are greater than for firms whose managers have long-horizon incentives. Consistent with the positive abnormal returns, M&As conducted by short-horizon managers exhibit stronger post-M&A accounting-based performance. The results are surprising when viewed against the conventional wisdom that giving managers short-term incentives is suboptimal and imply that short-term incentives can be value increasing for some firms.

Keywords: executive compensation, pay duration, executive incentives, mergers and acquisitions, short-termism

JEL Classification: G34, M12, G14

Suggested Citation

Cihan, Mehmet and Tuncez, Ahmet M., The Bright Side of Giving Managers Short-Horizon Incentives (December 16, 2019). Available at SSRN: or

Mehmet Cihan

University of Connecticut ( email )

Storrs, CT 06269-1063
United States

Ahmet M. Tuncez (Contact Author)

Adrian College ( email )

110 S. Madison
Adrian, MI 49221
United States

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