Director compensation incentives and acquisition performance

Abstract : This paper investigates the relation between director compensation structure and shareholder interests in the context of acquisitions. Our evidence suggests that acquirer firms that compensate their directors with a higher proportion of incentive-based compensation have significantly higher stock returns around the announcement. Compared to acquirers in the low equity-based compensation group, acquirers in the high equity-based compensation group outperform by 9.54% in a five-day period surrounding the announcement date. These results hold even after controlling for endogeneity issues. We further find that acquirers with higher equity-based pay exhibit greater improvements in stock price and operating performance in the three years following acquisitions. An increase in director equity-based pay also results in a lower acquisition premium for targets. These results indicate that equity-based compensation provides incentives for directors to make decisions that meet the interests of shareholders.
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International Review of Financial Analysis, Elsevier, 2017, 53, pp.1 - 11. 〈10.1016/j.irfa.2017.07.005〉
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https://hal-univ-rennes1.archives-ouvertes.fr/hal-01614572
Contributeur : Anne L'Azou <>
Soumis le : mercredi 11 octobre 2017 - 10:38:44
Dernière modification le : mardi 20 février 2018 - 13:32:56

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Ismail Lahlou, Patrick Navatte. Director compensation incentives and acquisition performance. International Review of Financial Analysis, Elsevier, 2017, 53, pp.1 - 11. 〈10.1016/j.irfa.2017.07.005〉. 〈hal-01614572〉

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