CEO Compensation Changes Following Acquisitions

51 Pages Posted: 29 Jun 2022

See all articles by Leonce Bargeron

Leonce Bargeron

University of Kentucky - Gatton College of Business and Economics

David J. Denis

University of Pittsburgh

Date Written: June 22, 2022

Abstract

Increases in CEO compensation following acquisitions are unique to stock-financed acquisitions. These compensation increases are driven by increases in equity-based compensation, and are concentrated in riskier acquirers, riskier acquisitions, and in acquirers whose CEOs have low exposure to the stock price. These findings support the Dual Adverse Selection Hypothesis, which posits that acquirers use stock to overcome adverse selection in the target firm, while increasing the equity-based compensation of the acquirer CEO to mitigate adverse selection concerns on the part of target shareholders. We find little support for the hypothesis that acquisition-related increases in CEO compensation are due to entrenched, empire building CEOs.

Keywords: CEO compensation, acquisitions

JEL Classification: G32, G34

Suggested Citation

Bargeron, Leonce and Denis, David J., CEO Compensation Changes Following Acquisitions (June 22, 2022). Available at SSRN: https://ssrn.com/abstract=4144861 or http://dx.doi.org/10.2139/ssrn.4144861

Leonce Bargeron

University of Kentucky - Gatton College of Business and Economics ( email )

550 South Limestone
Lexington, KY 40506
United States
859-257-4397 (Phone)

David J. Denis (Contact Author)

University of Pittsburgh ( email )

Katz Graduate School of Business
Pittsburgh, PA 15260
United States
412-648-1708 (Phone)

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