Growth-Promoting Bonuses and Mergers and Acquisitions

52 Pages Posted: 9 Apr 2023

See all articles by Tor-Erik Bakke

Tor-Erik Bakke

University of Illinois at Chicago - Department of Finance

Mathias Kronlund

Tulane University

Hamed Mahmudi

University of Delaware - Department of Finance

Aazam Virani

University of Arizona - Department of Finance

Date Written: March 22, 2023

Abstract

We study how growth-promoting bonuses - bonuses that are explicitly tied to size measures such as sales - impact firms' acquisition activity. Firms whose executives are granted growth-promoting bonuses are more likely to do acquisitions. Acquisitions by such firms tend to destroy value for acquirers, as indicated by lower acquirer announcement returns. Lower acquirer returns appear to be a result of selecting targets with lower synergies and to a lesser extent, higher value transfers to targets. Among firms that grant growth-promoting bonuses, many would have missed their bonus goals without doing an acquisition.

Keywords: Merger and Acquisitions, Executive Compensation, Annual Incentive Plans, Growth-promoting Bonuses

JEL Classification: G32, G35, J23

Suggested Citation

Bakke, Tor-Erik and Kronlund, Mathias and Mahmudi, Hamed and Virani, Aazam, Growth-Promoting Bonuses and Mergers and Acquisitions (March 22, 2023). European Corporate Governance Institute – Finance Working Paper No. 906/2023, Available at SSRN: https://ssrn.com/abstract=4396815 or http://dx.doi.org/10.2139/ssrn.4396815

Tor-Erik Bakke

University of Illinois at Chicago - Department of Finance ( email )

2431 University Hall (UH)
601 S. Morgan Street
Chicago, IL 60607-7124
United States
6087707753 (Phone)

HOME PAGE: http://https://sites.google.com/site/tebakke/

Mathias Kronlund

Tulane University ( email )

7 McAlister Drive
New Orleans, LA 70118
United States

Hamed Mahmudi (Contact Author)

University of Delaware - Department of Finance ( email )

Alfred Lerner College of Business and Economics
Newark, DE 19716
United States

Aazam Virani

University of Arizona - Department of Finance ( email )

McClelland Hall
Tucson, AZ 85721-0108
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
91
Abstract Views
269
Rank
446,041
PlumX Metrics