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Does Equity-Based Compensation Make Ceos More Acquisitive?

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  • Thomas J. Boulton
  • Marcus V. Braga-Alves
  • Frederik P. Schlingemann

Abstract

type="main" xml:lang="en"> Theory is conflicted on the impact of equity-based compensation on managerial risk taking. We explore this issue by studying the relation between equity-based compensation and firms' propensity to make acquisitions. Consistent with the notion that equity-based compensation encourages managerial risk taking, we report a positive relation between equity-based compensation and CEO acquisitiveness. Additionally, we find that the number of acquisitions, acquisition size, use of equity as payment, and propensity to acquire private firms are all positively associated with equity-based compensation. Abnormal returns around acquisition announcements suggest that the impact of equity-based compensation is not uniformly positive for acquiring-firm shareholders.

Suggested Citation

  • Thomas J. Boulton & Marcus V. Braga-Alves & Frederik P. Schlingemann, 2014. "Does Equity-Based Compensation Make Ceos More Acquisitive?," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 37(3), pages 267-294, September.
    • Handle: RePEc:bla:jfnres:v:37:y:2014:i:3:p:267-294
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    Cited by:

    1. David Hillier & Patrick McColgan & Athanasios Tsekeris, 2022. "How did the Sarbanes–Oxley Act affect managerial incentives? Evidence from corporate acquisitions," Review of Quantitative Finance and Accounting, Springer, vol. 58(4), pages 1395-1450, May.
    2. Croci, Ettore & Petmezas, Dimitris, 2015. "Do risk-taking incentives induce CEOs to invest? Evidence from acquisitions," Journal of Corporate Finance, Elsevier, vol. 32(C), pages 1-23.
    3. Nguyen, Nam H. & Phan, Hieu V. & Phan, Hung V. & Tran, Dung T.T. & Vo, Hong, 2020. "Tournament-based incentives and mergers and acquisitions," International Review of Financial Analysis, Elsevier, vol. 71(C).
    4. Agha, Mahmoud & Hossain, Md Mosharraf, 2022. "Are board monitoring and CEO incentives substitutes for each other? Evidence from Australian market reaction to acquisition announcements," International Review of Financial Analysis, Elsevier, vol. 81(C).

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