Why Do Managers Undertake Acquisitions? An Analysis of Internal and External Rewards for Acquisitiveness

Journal of Law, Economics, and Organization, Vol. 14 No. 1, Spring 1998

Posted: 16 Feb 1998

See all articles by Christopher Avery

Christopher Avery

Harvard University - Harvard Kennedy School (HKS); National Bureau of Economic Research (NBER)

Judith A. Chevalier

Yale School of Management; National Bureau of Economic Research (NBER)

Scott Schaefer

University of Utah - Department of Finance

Abstract

We study the effects of a firm's acquisitions on the subsequent career of its chief executive officer (CEO) by examining a sample of executives who undertook large acquisitions between 1986 and 1988. We find that acquirers do not have significantly different compensation growth from executives who did not undertake acquisitions. Further, we find the effect of acquisitions on compensation does not depend on whether the acquisition increased shareholder wealth, nor on whether the acquisition was diversifying. We do find a benefit to acquisitions, however, because CEOs who completed acquisitions are significantly more likely to gain outside directorships than those who did not complete acquisitions. Our results do not support the argument that CEOs have an incentive to pursue acquisitions in order to increase their own compensation, but lend support to the argument that CEOs have an incentive to pursue acquisitions to increase their prestige and standing in the business community.

JEL Classification: G34

Suggested Citation

Avery, Christopher and Chevalier, Judith A. and Schaefer, Scott, Why Do Managers Undertake Acquisitions? An Analysis of Internal and External Rewards for Acquisitiveness. Journal of Law, Economics, and Organization, Vol. 14 No. 1, Spring 1998. Available at SSRN: https://ssrn.com/abstract=52523

Christopher Avery (Contact Author)

Harvard University - Harvard Kennedy School (HKS) ( email )

79 John F. Kennedy Street
Cambridge, MA 02138
United States
617-496-4063 (Phone)
617-496-1722 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Judith A. Chevalier

Yale School of Management ( email )

135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Scott Schaefer

University of Utah - Department of Finance ( email )

David Eccles School of Business
Salt Lake City, UT 84112
United States

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