IDEAS home Printed from https://ideas.repec.org/a/eee/quaeco/v90y2023icp162-177.html
   My bibliography  Save this article

CEO perquisite compensation and M&A performance

Author

Listed:
  • Chan, Chia-Ying
  • Nishikawa, Takeshi
  • Williams, Thomas C.

Abstract

This paper offers empirical evidence of the role that CEO perquisite compensations (perks) play in a firm’s M&A activities. Using hand-collected panel-data on CEO perks from S&P 500 firms between 2006 and 2014, we find that the M&A deals undertaken by CEOs with high levels of perquisite receive significantly worse market reactions around the announcement period. Further, these deals experience lower post-acquisition abnormal operating and stock performance compared to the deals conducted by CEOs with low levels of perquisite. Firms whose CEOs received greater perquisite also exhibit severe crash risk. Our results are consistent with the widely held negative sentiment toward perquisite compensation.

Suggested Citation

  • Chan, Chia-Ying & Nishikawa, Takeshi & Williams, Thomas C., 2023. "CEO perquisite compensation and M&A performance," The Quarterly Review of Economics and Finance, Elsevier, vol. 90(C), pages 162-177.
    • Handle: RePEc:eee:quaeco:v:90:y:2023:i:c:p:162-177
    DOI: 10.1016/j.qref.2023.05.008
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1062976923000698
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.qref.2023.05.008?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. John E. Core & Wayne R. Guay & David F. Larcker, 2003. "Executive equity compensation and incentives: a survey," Economic Policy Review, Federal Reserve Bank of New York, vol. 9(Apr), pages 27-50.
    2. Rajan, Raghuram G. & Wulf, Julie, 2006. "Are perks purely managerial excess?," Journal of Financial Economics, Elsevier, vol. 79(1), pages 1-33, January.
    3. Malmendier, Ulrike & Tate, Geoffrey, 2008. "Who makes acquisitions? CEO overconfidence and the market's reaction," Journal of Financial Economics, Elsevier, vol. 89(1), pages 20-43, July.
    4. Chenyang Wei & David Yermack, 2011. "Investor Reactions to CEOs' Inside Debt Incentives," The Review of Financial Studies, Society for Financial Studies, vol. 24(11), pages 3813-3840.
    5. Frank, Robert H, 1985. "The Demand for Unobservable and Other Nonpositional Goods," American Economic Review, American Economic Association, vol. 75(1), pages 101-116, March.
    6. Lee, Lian Fen & Lowry, Michelle & Shu, Susan, 2018. "Are all perks solely perks? Evidence from corporate jets," Journal of Corporate Finance, Elsevier, vol. 48(C), pages 460-473.
    7. Angela Andrews & Scott Linn & Han Yi, 2017. "Corporate governance and executive perquisites," Review of Accounting and Finance, Emerald Group Publishing Limited, vol. 16(1), pages 21-45, February.
    8. Yakov Amihud & Baruch Lev, 1981. "Risk Reduction as a Managerial Motive for Conglomerate Mergers," Bell Journal of Economics, The RAND Corporation, vol. 12(2), pages 605-617, Autumn.
    9. Grinstein, Yaniv & Hribar, Paul, 2004. "CEO compensation and incentives: Evidence from M&A bonuses," Journal of Financial Economics, Elsevier, vol. 73(1), pages 119-143, July.
    10. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
    11. Tao, Qizhi & Li, Haoyu & Wu, Qun & Zhang, Ting & Zhu, Yingjun, 2019. "The dark side of board network centrality: Evidence from merger performance," Journal of Business Research, Elsevier, vol. 104(C), pages 215-232.
    12. Kim, Jeong-Bon & Li, Yinghua & Zhang, Liandong, 2011. "CFOs versus CEOs: Equity incentives and crashes," Journal of Financial Economics, Elsevier, vol. 101(3), pages 713-730, September.
    13. Morck, Randall & Shleifer, Andrei & Vishny, Robert W., 1988. "Management ownership and market valuation," Scholarly Articles 29407535, Harvard University Department of Economics.
    14. Sudip Datta & Mai Iskandar‐Datta & Kartik Raman, 2001. "Executive Compensation and Corporate Acquisition Decisions," Journal of Finance, American Finance Association, vol. 56(6), pages 2299-2336, December.
    15. Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-329, May.
    16. Murphy, Kevin J., 1985. "Corporate performance and managerial remuneration : An empirical analysis," Journal of Accounting and Economics, Elsevier, vol. 7(1-3), pages 11-42, April.
    17. Xu, Nianhang & Li, Xiaorong & Yuan, Qingbo & Chan, Kam C., 2014. "Excess perks and stock price crash risk: Evidence from China," Journal of Corporate Finance, Elsevier, vol. 25(C), pages 419-434.
    18. Phan, Hieu V., 2014. "Inside Debt and Mergers and Acquisitions," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 49(5-6), pages 1365-1401, December.
    19. Moeller, Sara B. & Schlingemann, Frederik P. & Stulz, Rene M., 2004. "Firm size and the gains from acquisitions," Journal of Financial Economics, Elsevier, vol. 73(2), pages 201-228, August.
    20. Lucian Arye Bebchuk & Jesse M. Fried, 2004. "Stealth Compensation Via Retirement Benefits," NBER Working Papers 10742, National Bureau of Economic Research, Inc.
    21. Ronald W. Masulis & Cong Wang & Fei Xie, 2007. "Corporate Governance and Acquirer Returns," Journal of Finance, American Finance Association, vol. 62(4), pages 1851-1889, August.
    22. Callen, Jeffrey L. & Fang, Xiaohua, 2015. "Short interest and stock price crash risk," Journal of Banking & Finance, Elsevier, vol. 60(C), pages 181-194.
    23. Kim, Jeong-Bon & Li, Yinghua & Zhang, Liandong, 2011. "Corporate tax avoidance and stock price crash risk: Firm-level analysis," Journal of Financial Economics, Elsevier, vol. 100(3), pages 639-662, June.
    24. Angela Andrews & Scott Linn & Han Yi, 2017. "Corporate governance and executive perquisites," Review of Accounting and Finance, Emerald Group Publishing Limited, vol. 16(1), pages 21-45, February.
    25. Fama, Eugene F & Jensen, Michael C, 1983. "Separation of Ownership and Control," Journal of Law and Economics, University of Chicago Press, vol. 26(2), pages 301-325, June.
    26. Gul, Ferdinand A. & Cheng, Louis T.W. & Leung, T.Y., 2011. "Perks and the informativeness of stock prices in the Chinese market," Journal of Corporate Finance, Elsevier, vol. 17(5), pages 1410-1429.
    27. Surendranath Jory & Thanh Ngo & Jurica Susnjara, 2020. "Stock mergers and acquirers’ subsequent stock price crash risk," Review of Quantitative Finance and Accounting, Springer, vol. 54(1), pages 359-387, January.
    28. Barber, Brad M. & Lyon, John D., 1997. "Detecting long-run abnormal stock returns: The empirical power and specification of test statistics," Journal of Financial Economics, Elsevier, vol. 43(3), pages 341-372, March.
    29. Barber, Brad M. & Lyon, John D., 1996. "Detecting abnormal operating performance: The empirical power and specification of test statistics," Journal of Financial Economics, Elsevier, vol. 41(3), pages 359-399, July.
    30. Coles, Jeffrey L. & Daniel, Naveen D. & Naveen, Lalitha, 2006. "Managerial incentives and risk-taking," Journal of Financial Economics, Elsevier, vol. 79(2), pages 431-468, February.
    31. Yaniv Grinstein & David Weinbaum & Nir Yehuda, 2017. "The Economic Consequences of Perk Disclosure," Contemporary Accounting Research, John Wiley & Sons, vol. 34(4), pages 1812-1842, December.
    32. Sanford J. Grossman & Oliver D. Hart, 1980. "Takeover Bids, the Free-Rider Problem, and the Theory of the Corporation," Bell Journal of Economics, The RAND Corporation, vol. 11(1), pages 42-64, Spring.
    33. Fama, Eugene F, 1980. "Agency Problems and the Theory of the Firm," Journal of Political Economy, University of Chicago Press, vol. 88(2), pages 288-307, April.
    34. Kathleen Fuller & Jeffry Netter & Mike Stegemoller, 2002. "What Do Returns to Acquiring Firms Tell Us? Evidence from Firms That Make Many Acquisitions," Journal of Finance, American Finance Association, vol. 57(4), pages 1763-1793, August.
    35. Lewellen, Wilbur & Loderer, Claudio & Rosenfeld, Ahron, 1985. "Merger decisions and executive stock ownership in acquiring firms," Journal of Accounting and Economics, Elsevier, vol. 7(1-3), pages 209-231, April.
    36. Yermack, David, 2006. "Flights of fancy: Corporate jets, CEO perquisites, and inferior shareholder returns," Journal of Financial Economics, Elsevier, vol. 80(1), pages 211-242, April.
    37. Cassell, Cory A. & Huang, Shawn X. & Manuel Sanchez, Juan & Stuart, Michael D., 2012. "Seeking safety: The relation between CEO inside debt holdings and the riskiness of firm investment and financial policies," Journal of Financial Economics, Elsevier, vol. 103(3), pages 588-610.
    38. Jarrad Harford & Kai Li, 2007. "Decoupling CEO Wealth and Firm Performance: The Case of Acquiring CEOs," Journal of Finance, American Finance Association, vol. 62(2), pages 917-949, April.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Chia-Ying Chan & Iftekhar Hasan & Chih-Yung Lin, 2021. "Agency cost of CEO perquisites in bank loan contracts," Review of Quantitative Finance and Accounting, Springer, vol. 56(4), pages 1221-1258, May.
    2. An, Suwei, 2023. "Essays on incentive contracts, M&As, and firm risk," Other publications TiSEM dd97d2f5-1c9d-47c5-ba62-f, Tilburg University, School of Economics and Management.
    3. Xi, Dan & Wu, Yuze & Wang, Xue & Fu, Zhe, 2023. "Corporate social responsibility and excess perks," Journal of Empirical Finance, Elsevier, vol. 74(C).
    4. Hong, Yun & Yao, Youfu, 2024. "Can comment letters impact excess perks? Evidence from China," International Review of Financial Analysis, Elsevier, vol. 91(C).
    5. Martynova, M., 2006. "The market for corporate control and corporate governance regulation in Europe," Other publications TiSEM 8651e281-4914-41f2-ac14-1, Tilburg University, School of Economics and Management.
    6. Andrey Golubov & Dimitris Petmezas & Nickolaos G. Travlos, 2013. "Empirical mergers and acquisitions research: a review of methods, evidence and managerial implications," Chapters, in: Adrian R. Bell & Chris Brooks & Marcel Prokopczuk (ed.), Handbook of Research Methods and Applications in Empirical Finance, chapter 12, pages 287-313, Edward Elgar Publishing.
    7. Szilagyi, P.G., 2007. "Corporate governance and the agency costs of debt and outside equity," Other publications TiSEM 9520d40a-224f-43a8-9bf9-b, Tilburg University, School of Economics and Management.
    8. Croci, Ettore & Petmezas, Dimitris, 2015. "Do risk-taking incentives induce CEOs to invest? Evidence from acquisitions," Journal of Corporate Finance, Elsevier, vol. 32(C), pages 1-23.
    9. Agarwal, Vikas & Daniel, Naveen D. & Naik, Narayan Y., 2009. "Role of managerial incentives and discretion in hedge fund performance," CFR Working Papers 04-04, University of Cologne, Centre for Financial Research (CFR).
    10. Renneboog, Luc & Vansteenkiste, Cara, 2019. "Failure and success in mergers and acquisitions," Journal of Corporate Finance, Elsevier, vol. 58(C), pages 650-699.
    11. Hua Zhang & Yuanyang Song & Yuan Ding, 2015. "What Drives Managerial Perks? An Empirical Test of Competing Theoretical Perspectives," Journal of Business Ethics, Springer, vol. 132(2), pages 259-275, December.
    12. Gurmeet S. Bhabra & Harjeet S. Bhabra & Ashrafee T. Hossain, 2022. "CEO inside debt and the acquisition of private targets," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 62(2), pages 2163-2202, June.
    13. Xu, Weidong & Gao, Xin & Li, Donghui & Zhuang, Mingming & Yang, Shijie, 2022. "Serial acquirers and stock price crash risk: International evidence," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 78(C).
    14. Nguyen, Nam H. & Phan, Hieu V. & Phan, Hung V. & Tran, Dung T.T. & Vo, Hong, 2020. "Tournament-based incentives and mergers and acquisitions," International Review of Financial Analysis, Elsevier, vol. 71(C).
    15. Carline, Nicholas F. & Linn, Scott C. & Yadav, Pradeep K., 2009. "Operating performance changes associated with corporate mergers and the role of corporate governance," Journal of Banking & Finance, Elsevier, vol. 33(10), pages 1829-1841, October.
    16. Lahlou, Ismail & Navatte, Patrick, 2017. "Director compensation incentives and acquisition performance," International Review of Financial Analysis, Elsevier, vol. 53(C), pages 1-11.
    17. Chari, Murali D.R. & David, Parthiban & Duru, Augustine & Zhao, Yijiang, 2019. "Bowman's risk-return paradox: An agency theory perspective," Journal of Business Research, Elsevier, vol. 95(C), pages 357-375.
    18. 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.
    19. Agha, Mahmoud & Hossain, Md Mosharraf, 2022. "Are board monitoring and CEO incentives substitutes for each other? Evidence from Australian market reaction to acquisition announcements," International Review of Financial Analysis, Elsevier, vol. 81(C).
    20. Dong, Wang & Ke, Yun & Li, Shuo & Chen, Xiangyu & Wan, Peng, 2021. "Does social trust restrain excess perk consumption? Evidence from China," International Review of Economics & Finance, Elsevier, vol. 76(C), pages 1078-1092.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:quaeco:v:90:y:2023:i:c:p:162-177. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/620167 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.