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The Impact of Merger Activity on Executive Pay in the United Kingdom




We examine the impact of mergers and acquisitions on the remuneration of CEOs in the UK from 1981 to 1996. We find that CEO pay is not strongly related to company performance. In contrast, increases in firm size do have a significant impact. There is also evidence that acquisitions offer CEOs the scope to influence their pay positively. We also note however that CEOs engaging in 'wealth-reducing' acquisitions experience significantly lower remuneration than their counterparts whose deals meet with market approval. This result suggests that shareholder-principals have at least some success in penalizing managers for unwarranted, empire-building, mergers. Copyright (c) The London School of Economics and Political Science 2006.

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  • Sourafel Girma & Steve Thompson & Peter W. Wright, 2006. "The Impact of Merger Activity on Executive Pay in the United Kingdom," Economica, London School of Economics and Political Science, vol. 73(290), pages 321-339, May.
  • Handle: RePEc:bla:econom:v:73:y:2006:i:290:p:321-339

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    References listed on IDEAS

    1. Bertrand, M. & Mullainathan, S., 1998. "Executive Compensation and Incentives: the Impact of Takeover Legislation," Papers 202, Princeton, Woodrow Wilson School - Public and International Affairs.
    2. repec:fth:prinin:404 is not listed on IDEAS
    3. A Cosh & P Guest, 2001. "The Long-Run Performance of Hostile Takeovers: UK Evidence," Working Papers wp215, Centre for Business Research, University of Cambridge.
    4. Marianne Bertrand & Sendhil Mullainathan, 1998. "Executive Compensation and Incentives: The Impact of Takeover Legislation," Working Papers 783, Princeton University, Department of Economics, Industrial Relations Section..
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    Cited by:

    1. Ozkan, Neslihan, 2012. "Do CEOs gain more in foreign acquisitions than domestic acquisitions?," Journal of Banking & Finance, Elsevier, vol. 36(4), pages 1122-1138.
    2. Swarnodeep Homroy, 2014. "Pay increase may not be a strong incentive for undertaking acquisitions," Working Papers 66910750, Lancaster University Management School, Economics Department.
    3. 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.
    4. Papa, Gianluca & Speciale, Biagio, 2011. "Financial leverage and managerial compensation: Evidence from the UK," Research in Economics, Elsevier, vol. 65(1), pages 36-46, March.
    5. Kräkel, Matthias & Müller, Daniel, 2015. "Merger efficiency and managerial incentives," International Journal of Industrial Organization, Elsevier, vol. 41(C), pages 51-63.
    6. John S. Marsh & William J. Wales & Fariss-Terry Mousa & Rachel Graefe-Anderson, 2016. "Countermove: how CEOs respond to post-acquisition compensation adjustments," Review of Managerial Science, Springer, vol. 10(4), pages 711-755, October.
    7. Matthias Kräkel & Daniel Müller, 2014. "Merger Performance and Managerial Incentives," Bonn Econ Discussion Papers bgse02_2014, University of Bonn, Germany.
    8. Kräkel, Matthias & Müller, Daniel, 2013. "Bad Mergers Revisited: An Incentive Perspective," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79914, Verein für Socialpolitik / German Economic Association.

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