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Contractual revisions in compensation: Evidence from merger bonuses to target CEOs

Author

Listed:
  • Fich, Eliezer M.
  • Rice, Edward M.
  • Tran, Anh L.

Abstract

Do merger bonuses to target CEOs facilitate a wealth transfer from target to acquirer shareholders? We test this hypothesis against an alternative that bonuses enable a useful contractual revision in compensation contracts when takeovers generate small synergies. When target CEOs get a merger bonus, acquirers pay lower premiums, but they also typically get less in the form of low synergies. Moreover, both stock and accounting returns to the acquirers are lower on average in deals with target CEO bonuses. These results support the contractual revision alternative. Nevertheless, wealth transfer occurs when merger bonuses are present in deals where targets exhibit high pre-takeover abnormal accruals or are subject to SEC enforcement actions.

Suggested Citation

  • Fich, Eliezer M. & Rice, Edward M. & Tran, Anh L., 2016. "Contractual revisions in compensation: Evidence from merger bonuses to target CEOs," Journal of Accounting and Economics, Elsevier, vol. 61(2), pages 338-368.
    • Handle: RePEc:eee:jaecon:v:61:y:2016:i:2:p:338-368
    DOI: 10.1016/j.jacceco.2015.12.002
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    Citations

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    Cited by:

    1. Hua, Guiru & Zhou, Shuli & Zhang, Shiyun & Wang, Junqiu, 2020. "Industry policy, investor sentiment, and cross-industry capital flow: Evidence from Chinese listed companies’ cross-industry M&As," Research in International Business and Finance, Elsevier, vol. 53(C).
    2. Zhao, Yiran & Cai, Jianfeng, 2024. "Effects of M&A Type on Top Management Turnover: Moderating Role of Industry Similarity & Target Experience," International Review of Economics & Finance, Elsevier, vol. 93(PB), pages 1130-1144.
    3. Stewart, Christopher R., 2023. "Appraisal rights and corporate disclosure during mergers and acquisitions," Journal of Accounting and Economics, Elsevier, vol. 75(1).
    4. Boyson, Nicole M. & Gantchev, Nickolay & Shivdasani, Anil, 2017. "Activism mergers," Journal of Financial Economics, Elsevier, vol. 126(1), pages 54-73.
    5. Bruyland, Evy & Lasfer, Meziane & De Maeseneire, Wouter & Song, Wei, 2019. "The performance of acquisitions by high default risk bidders," Journal of Banking & Finance, Elsevier, vol. 101(C), pages 37-58.
    6. Keivan Aghasi & Massimo G. Colombo & Cristina Rossi‐Lamastra, 2022. "Post‐Acquisition Retention of Target Founder‐CEOs: Looking Beneath the Surface," Journal of Management Studies, Wiley Blackwell, vol. 59(4), pages 958-997, June.
    7. Even-Tov, Omri & Lourie, Ben & Nekrasov, Alex & Zeng, Jean (Jieyin), 2024. "Failed acquisition offers: The impact of failure reasons on target valuation," Finance Research Letters, Elsevier, vol. 63(C).
    8. Andreas Charitou & Christodoulos Louca, 2017. "Why Do Canadian Firms Cross-list? The Flip Side of the Issue," Abacus, Accounting Foundation, University of Sydney, vol. 53(2), pages 211-239, June.

    More about this item

    Keywords

    Merger bonus; Acquisitions; Synergies; Wealth transfer; Abnormal accruals; SEC enforcement action;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods

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