Executive Compensation and Corporate Acquisition Decisions

Posted: 26 Apr 2001

See all articles by Sudip Datta

Sudip Datta

Wayne State University - Finance Department

Kartik Raman

Bentley University

Mai Iskandar-Datta

Wayne State University - Finance Department

Abstract

By examining how executive compensation structure determines corporate acquisition decisions, we document a strong positive relation between acquiring managers' equity-based compensation (EBC) and stock price performance around and following acquisition announcements. This relation is highly robust when we control for acquisition mode (mergers), means of payment, managerial ownership, and previous option grants. Compared to low EBC managers, high EBC managers pay lower acquisition premiums, acquire targets with higher growth opportunities, and make acquisitions engendering larger increases in firm risk. EBC significantly explains post-acquisition stock price performance even after controlling for acquisition mode, means of payment, and "glamour" versus "value" acquirers.

Keywords: Executive compensation, corporate acquisitions

JEL Classification: G3

Suggested Citation

Datta, Sudip and Raman, Kartik and Iskandar-Datta, Mai E., Executive Compensation and Corporate Acquisition Decisions. Available at SSRN: https://ssrn.com/abstract=265225

Sudip Datta (Contact Author)

Wayne State University - Finance Department ( email )

328 Prentis Bldg.
5201 Cass Avenue
Detroit, MI 48202
United States
(313) 577- 0408 (Phone)
(313) 577-0058 (Fax)

Kartik Raman

Bentley University ( email )

175 Forest Street
Waltham, MA 02154
United States

Mai E. Iskandar-Datta

Wayne State University - Finance Department ( email )

328 Prentis Bldg.
5201 Cass Avenue
Detroit, MI 48202
United States
(313) 577-9509 (Phone)

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