The Dark Side of Executive Compensation Duration: Evidence from Mergers and Acquisitions

Journal of Financial and Quantitative Analysis, 2021

Posted: 21 Sep 2022

See all articles by Zhi Li

Zhi Li

Chapman University - The George L. Argyros School of Business & Economics

Qiyuan Peng

University of Dayton - School of Business Administration

Date Written: December 1, 2021

Abstract

We find that contrary to popular belief, CEOs with long compensation duration do not make better long-term investment decisions. Using a comprehensive pay duration measure, we find that acquisitions conducted by CEOs with long compensation duration receive more negative announcement returns, and experience significantly worse post-acquisition abnormal operating and stock performance, compared with deals conducted by CEOs with short compensation duration. The negative correlation between compensation duration and M&A performance is driven by long-term time-vesting plans, not by performance-vesting plans. The results suggest that extending CEO pay horizon without implementing performance requirements is insufficient to improve managerial long-term investment decisions.

Suggested Citation

Li, Zhi and Peng, Qiyuan, The Dark Side of Executive Compensation Duration: Evidence from Mergers and Acquisitions (December 1, 2021). Journal of Financial and Quantitative Analysis, 2021, Available at SSRN: https://ssrn.com/abstract=4199056

Zhi Li (Contact Author)

Chapman University - The George L. Argyros School of Business & Economics ( email )

333 N. Glassell
Orange, CA 92866
United States
714-6287224 (Phone)

Qiyuan Peng

University of Dayton - School of Business Administration ( email )

Dayton, OH 45469
United States

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