Acquisition Experience and Director Remuneration

Abstract

We investigate whether acquisition experience of executive and non-executive directors is priced in their remuneration. We find that acquisition experience generates a contractual premium, and the relative size of this premium is higher for non-executive directors than for executives. Only a director’s track record related to past successful acquisitions is priced. Acquisition experience at the individual director is not remunerated if this type of experience is already abundantly present in the firm through the firm’s past acquisition record or via the experience of the other board members. We verify the results by examining potential endogeneity concerns, by analyzing a broad set of different views on acquisition experience (such as industry specific, broad or international experience, experience on a target’s board), and by ruling out alternative explanations (such as a director’s general skills level or reputation).

Keywords: M&A, mergers, remuneration contracting, compensation, experience, human capital

JEL Classification: G34, M12, J30