CEO Compensation and Incentives - Evidence from M&A Bonuses
Cornell University Working Paper
38 Pages Posted: 13 Aug 2003
Date Written: June 2003
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: Suggested Citation