Executive Compensation Structure and Corporate Equity Financing Decisions
Posted: 1 Dec 2003
There are 2 versions of this paper
Executive Compensation Structure and Corporate Equity Financing Decisions
Abstract
Building on Myers and Majluf's (1984) model, we propose that the magnitude of the market response to seasoned equity offering (SEO) announcements depends on the degree of alignment between the goals of managers and existing shareholders. We document a negative relation between the stock market response to SEO announcements and equity-based compensation (EC) awarded to issuing firm managers. The evidence suggests that the market perceives high EC managers as issuing more-overvalued equity (relative to low EC managers), which benefits existing shareholders and exacerbates the adverse selection problem for potential new shareholders. The relation between EC and the market reaction to SEOs varies cross-sectionally with (a) information asymmetry, (b) investment opportunities, (c) pre-issue stock price run-up, and (d) managerial ownership. Our study highlights the importance of a cohesive executive compensation policy and corporate financing policy.
Keywords: Executive compensation, Financing, Equity offering, SEOs
JEL Classification: G30, G32
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
New Evidence and Perspectives on Mergers
By Gregor Andrade, Mark L. Mitchell, ...
-
Do Managerial Objectives Drive Bad Acquisitions?
By Randall Morck, Andrei Shleifer, ...
-
Stock Market Driven Acquisitions
By Andrei Shleifer and Robert W. Vishny
-
Stock Market Driven Acquisitions
By Andrei Shleifer and Robert W. Vishny
-
Poison or Placebo? Evidence on the Deterrent and Wealth Effects of Modern Antitakeover Measures
By Robert Comment and G. William Schwert
-
Does Corporate Performance Improve after Mergers?
By Paul M. Healy, Krishna Palepu, ...
-
Managerial Performance, Tobin's Q, and the Gains from Successful Tender Offers
By Larry H.p. Lang, Ralph A. Walkling, ...