Executive Careers and Compensation Surrounding Takeover Bids

31 Pages Posted: 13 Mar 2008 Last revised: 30 Jul 2011

See all articles by Anup Agrawal

Anup Agrawal

University of Alabama - Culverhouse College of Commerce & Business Administration

Ralph A. Walkling

Drexel University - Lebow College of Business

Date Written: July 28, 2011

Abstract

This article examines the impact of a takeover bid on careers and compensation of chief executives of target firms. We find that acquisition attempts occur more frequently in industries where chief executive officers (CEO) have positive abnormal compensation. Target CEOs are more likely to be replaced when a bid succeeds, than when it fails. CEOs of target firms who lose their jobs generally fail to find another senior executive position in any public corporation within three years after the bid. Consistent with Fama's (1980) notion of ex post settling up, postbid compensation changes of managers retained after an acquisition attempt are negatively related to several measures of their prebid abnormal compensation. This result is robust to a variety of specifications and does not seem to be caused by mean reversion or selection bias. These findings are consistent with the hypothesis that a takeover bid generates additional information that is used by labor markets to discipline managers.

Suggested Citation

Agrawal, Anup and Walkling, Ralph August, Executive Careers and Compensation Surrounding Takeover Bids (July 28, 2011). Journal of Finance, Vol. 49, No. 3, pp. 985- 1014, January 3-5, 1994. Available at SSRN: https://ssrn.com/abstract=918039

Anup Agrawal (Contact Author)

University of Alabama - Culverhouse College of Commerce & Business Administration ( email )

Culverhouse College of Business
EFLS, Box 870224
Tuscaloosa, AL 35487-0224
United States
205-348-8970 (Phone)
205-348-0590 (Fax)

HOME PAGE: http://aagrawal.people.ua.edu/

Ralph August Walkling

Drexel University - Lebow College of Business ( email )

LeBow College of Business
Philadelphia, PA 19104
United States
(215) 895-4920 (Phone)
(215) 895-6119 (Fax)

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