Growth-Promoting Bonuses and Mergers and Acquisitions
52 Pages Posted: 9 Apr 2023
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: Suggested Citation