Managerial compensation incentives and merger waves

Hillier, D., McColgan, P. and Tsekeris, A. ORCID: 0000-0003-3289-5235, 2016. Managerial compensation incentives and merger waves. In: Financial Management Association Annual Meeting, Las Vegas, Nevada, 19-22 October 2016.

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This paper examines the relation between executive compensation incentives and the nature of merger transactions inside and outside of merger waves. We find that the sensitivity of CEO wealth to firm risk, vega, increases the likelihood of merger transactions outside of waves, but is unrelated to merger frequency inside wave periods. CEOs whose compensation is more closely tied to firm risk make better performing acquisitions when they acquire outside of merger waves, but this is not the case for in-wave deals, suggesting that underperformance of acquiring firms during waves can be attributed in part to ineffective compensation incentives. We also find that the cross-sectional dispersion of acquirers’ returns is higher for in-wave acquisitions relative to acquisitions made outside a wave, suggesting that out-wave acquisitions are characterized by lower uncertainty of future stock price returns. This is again restricted to high vega CEOs during out-wave periods.

Item Type: Conference contribution
Creators: Hillier, D., McColgan, P. and Tsekeris, A.
Date: 2016
Divisions: Schools > Nottingham Business School
Record created by: Jonathan Gallacher
Date Added: 08 Jan 2018 11:49
Last Modified: 08 Jan 2018 11:49

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