Value Creation Around Merger Waves: The Role of Managerial Compensation

31 Pages Posted: 27 May 2020

See all articles by David Hillier

David Hillier

University of Strathclyde - Department of Accounting and Finance

Patrick McColgan

University of Strathclyde

Athanasios Tsekeris

University of Strathclyde - Department of Accounting and Finance

Date Written: January/February 2020

Abstract

This paper examines the relation between executive compensation and value creation in merger waves. The sensitivity of CEO wealth to firm risk increases the likelihood of out‐of‐wave merger transactions but has no influence on in‐wave merger frequency. CEOs with compensation linked to firm risk have better out‐of‐wave merger performance in comparison to in‐wave mergers. We also present evidence that cross‐sectional acquirer return dispersion is greater for in‐wave acquisitions. Our results suggest that the underperformance of acquiring firms during merger waves can be attributed in part to ineffective compensation incentives, and appropriate managerial incentives can create value, particularly in non‐wave periods.

Keywords: deal performance, delta, incentive compensation, merger waves, vega

JEL Classification: G31, G34, M12

Suggested Citation

Hillier, David and McColgan, Patrick and Tsekeris, Athanasios, Value Creation Around Merger Waves: The Role of Managerial Compensation (January/February 2020). Journal of Business Finance & Accounting, Vol. 47, Issue 1-2, pp. 132-162, 2020, Available at SSRN: https://ssrn.com/abstract=3605624 or http://dx.doi.org/10.1111/jbfa.12419

David Hillier (Contact Author)

University of Strathclyde - Department of Accounting and Finance ( email )

Curran Building
100 Cathedral Street
Glasgow G4 0LN
United Kingdom
44 0141 330 4809 (Phone)
44 0141 330 4442 (Fax)

Patrick McColgan

University of Strathclyde ( email )

Curran Building
100 Cathedral Street
Glasgow, G4 0LN
United Kingdom
+44 1415483690 (Phone)

Athanasios Tsekeris

University of Strathclyde - Department of Accounting and Finance ( email )

Curran Building
100 Cathedral Street
Glasgow G4 0LN
United Kingdom

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