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Post‐acquisition financial performance and executive compensation

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  • Dennis R. Schmidt
  • Karen L. Fowler

Abstract

This study reports the results of an empirical analysis of post‐acquisition financial performance and changes in executive compensation. A model of the determinants of cash compensation is presented and tested. Firm size, form of acquisition, executive motivation, and financial performance are analyzed for two groups of acquiring firms. Results are compared to a group of non‐acquiring firms. The financial performance measures include accounting and capital market data for a 4‐year period both preceding and following acquisition activity. The results indicate that, on average, firms which engaged in a major acquisition performed poorly in the post‐acquisition period. Top executives of those firms, on average, experienced significant increases in cash compensation. After controlling for size effects, financial performance related strongly to changes in executive compensation for the non‐acquiring firms, but generally did not relate to changes in executive compensation for the acquiring firms.

Suggested Citation

  • Dennis R. Schmidt & Karen L. Fowler, 1990. "Post‐acquisition financial performance and executive compensation," Strategic Management Journal, Wiley Blackwell, vol. 11(7), pages 559-569, November.
    • Handle: RePEc:bla:stratm:v:11:y:1990:i:7:p:559-569
    DOI: 10.1002/smj.4250110706
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    Cited by:

    1. Benoît Pigé, 1994. "La politique de rémunération en tant qu'incitation à la performance des dirigeants," Post-Print hal-02175846, HAL.
    2. Nadia Lakhal & Asma Guizani & Asma Sghaier & Mohammed El َamine Abdelli & Imen Ben Slimene, 2021. "The impact of CSR performance on Efficiency of Investments using Machine Learning," Post-Print hal-03375264, HAL.
    3. Otten, J.A., 2008. "Theories on executive pay. A literature overview and critical assessment," MPRA Paper 6969, University Library of Munich, Germany.
    4. Yip, Rita W.Y. & Young, Danqing & Liu, Beibei & Wang, Zhichen, 2022. "Acquiring firms’ transparency and their returns around M&A announcements: Evidence from China," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 48(C).
    5. 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).
    6. Michael S Lin & Yeasun K Chung, 2019. "Understanding the impacts of corporate social responsibility and brand attributes on brand equity in the restaurant industry," Tourism Economics, , vol. 25(4), pages 639-658, June.

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