Incentive compensation vs. SOX: evidence from corporate acquisition decisions

McColgan, P., Hillier, D. and Tsekeris, A. ORCID: 0000-0003-3289-5235, 2014. Incentive compensation vs. SOX: evidence from corporate acquisition decisions. In: Financial Management Association Annual Meeting 2014, Nashville, Tennessee, USA, 15-18 October 2014.

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We empirically examine the impact of incentive compensation on the riskiness of acquisition decisions before and after the passage of Sarbanes-Oxley Act (SOX). Controlling for confounding events, firm characteristics and industry fixed effects, we find a substantial change in the relation between equity-related compensation and acquisition risk post-SOX stemming from a previously unidentified shift in the effectiveness of executive stock options to control managerial risk aversion. Not only has incentive compensation failed to offset the adverse impact of SOX on risk-taking activity but it has also significantly altered managerial incentives. The decrease in acquisition risk post-SOX cannot be solely attributed to changes in the structure of executive compensation but it additionally stems from the way managers perceive compensation-based incentives in the new regulatory environment. The results are robust to different measures of acquisition risk and alternative definitions of incentive compensation.

Item Type: Conference contribution
Creators: McColgan, P., Hillier, D. and Tsekeris, A.
Date: October 2014
Divisions: Schools > Nottingham Business School
Record created by: Linda Sullivan
Date Added: 06 Nov 2017 10:48
Last Modified: 06 Nov 2017 10:48

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