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CEO Compensation and Incentives - Evidence From M&A Bonuses

Cornell University Working Paper

38 Pages Posted: 13 Aug 2003  

Yaniv Grinstein

Cornell University - Samuel Curtis Johnson Graduate School of Management; Interdisciplinary Center (IDC) Herzliyah

Paul Hribar

University of Iowa - Henry B. Tippie College of Business

Multiple version iconThere are 2 versions of this paper

Date Written: June 2003

Abstract

We investigate CEO compensation for completing M&A deals. 39% of the acquiring firms in our sample state that they compensate their CEOs for completing the deal, and that the compensation comes mainly in the form of a cash bonus. We find that CEOs who have more power to influence board decisions receive significantly larger bonuses. We also find a positive relation between bonus compensation and measures of effort, but not between bonus compensation and deal performance. CEOs with more power also tend to engage in larger deals relative to the size of their own firms, and the market responds more negatively to their acquisition announcements. Our evidence is consistent with the argument that managerial power is the primary driver of M&A bonuses.

Keywords: Compensation, Mergers and Acquisitions

JEL Classification: G34, J33

Suggested Citation

Grinstein, Yaniv and Hribar, Paul, CEO Compensation and Incentives - Evidence From M&A Bonuses (June 2003). Cornell University Working Paper. Available at SSRN: https://ssrn.com/abstract=417763 or http://dx.doi.org/10.2139/ssrn.417763

Yaniv Grinstein (Contact Author)

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

Sage Hall
Ithaca, NY 14853
United States
607-255-8686 (Phone)
607-254-4590 (Fax)

Interdisciplinary Center (IDC) Herzliyah ( email )

P.O. Box 167
Herzliya, 46150
Israel

Paul Hribar

University of Iowa - Henry B. Tippie College of Business ( email )

Dept. of Accounting
Iowa City, IA 52242-1000
United States
319-335-1008 (Phone)

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