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Betcha can’t acquire just one: merger programs and compensation

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  • Richard J. Rosen

Abstract

This paper examines the evolution of merger programs, that is, repeated acquisitions by the same firm. Most acquisitions are made by firms with merger programs. Acquisitions that are part of programs are different from one-off acquisitions both in the effect on CEO compensation and in the reaction of the stock market. CEO compensation rises more after growth from program acquisitions than after internal growth or growth from one-off acquisitions. During a merger program, the increase in CEO compensation is much larger when the acquirer?s stock price is increasing than at other times. This is not true for other types of growth. Merger programs also show a distinct evolution. Initially, program mergers are received better by the stock market than are one- off mergers. ; As a program progresses, however, the acquisitions tend to have lower announcement reactions and long-run returns. In addition, the effect on CEO compensation is smaller for mergers later in a program. There is evidence that some firms are predisposed to make acquisitions. Firms that have made acquisitions in the recent past and that already pay their CEOs well are more likely to make future acquisitions. This suggests that there may be a managerial motivation for merger programs: firms where CEOs can expect to get large compensation increases from acquisitions are more likely to have merger programs.

Suggested Citation

  • Richard J. Rosen, 2004. "Betcha can’t acquire just one: merger programs and compensation," Working Paper Series WP-04-22, Federal Reserve Bank of Chicago.
    • Handle: RePEc:fip:fedhwp:wp-04-22
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    Cited by:

    1. Paul M. Guest, 2009. "The Impact of Mergers and Acquisitions on Executive Pay in the United Kingdom," Economica, London School of Economics and Political Science, vol. 76(301), pages 149-175, February.
    2. Rachel Merhebi & Kerry Pattenden & Peter L. Swan & Xianming Zhou, 2006. "Australian chief executive officer remuneration: pay and performance," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 46(3), pages 481-497, September.
    3. Aktas, Nihat & de Bodt, Eric & Roll, Richard, 2005. "Hubris, Learning, and M&A Decisions," University of California at Los Angeles, Anderson Graduate School of Management qt7j94111c, Anderson Graduate School of Management, UCLA.
    4. Jerry Coakley & Stavroula Iliopoulou, 2006. "Bidder CEO and Other Executive Compensation in UK M&As," European Financial Management, European Financial Management Association, vol. 12(4), pages 609-631, September.

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    Bank mergers; Bank management;

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