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Pay for Performance? CEO Compensation and Acquirer Returns in BHCs


  • Kristina Minnick
  • Haluk Unal
  • Liu Yang


We examine how managerial incentives affect acquisition decisions in the banking industry. We find that higher pay-for-performance sensitivity (PPS) leads to value-enhancing acquisitions. Banks whose CEOs have higher PPS have significantly better abnormal stock returns around the time of the acquisition announcements. On average, acquirers in the high-PPS group outperform their counterparts in the low-PPS group by 1.4% in a three-day window around the announcement. Higher PPS helps reduce the incentives for making value-destroying acquisitions, while at the same time promotes value-enhancing acquisitions. The positive market reaction can be rationalized by post-merger performance. Following acquisitions, banks with higher PPS experience greater improvements in their operating performance. We show that the effect of PPS is mainly evident in small and medium-sized banks, but is not present in large banks. The Author 2011. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail:, Oxford University Press.

Suggested Citation

  • Kristina Minnick & Haluk Unal & Liu Yang, 2011. "Pay for Performance? CEO Compensation and Acquirer Returns in BHCs," Review of Financial Studies, Society for Financial Studies, vol. 24(2), pages 439-472.
  • Handle: RePEc:oup:rfinst:v:24:y:2011:i:2:p:439-472

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    Cited by:

    1. Philipp E. Otto & Friedel Bolle, 2016. "Organizational power: Should remuneration heterogeneity mirror hierarchy?," Review of Economic Design, Springer;Society for Economic Design, vol. 20(3), pages 187-205, September.
    2. King, Timothy & Srivastav, Abhishek & Williams, Jonathan, 2016. "What's in an education? Implications of CEO education for bank performance," Journal of Corporate Finance, Elsevier, vol. 37(C), pages 287-308.
    3. Cowan, Arnold R. & Salotti, Valentina, 2015. "The resolution of failed banks during the crisis: Acquirer performance and FDIC guarantees, 2008–2013," Journal of Banking & Finance, Elsevier, vol. 54(C), pages 222-238.
    4. Burns, Natasha & Jindra, Jan & Minnick, Kristina, 2017. "Sales of private firms and the role of CEO compensation," Journal of Corporate Finance, Elsevier, vol. 43(C), pages 444-463.
    5. Ghosh, Chinmoy & Petrova, Milena, 2013. "Does deregulation induce competition in the market for corporate control? The special case of banking," Journal of Banking & Finance, Elsevier, vol. 37(12), pages 5220-5235.
    6. Srivastav, Abhishek & Armitage, Seth & Hagendorff, Jens, 2014. "CEO inside debt holdings and risk-shifting: Evidence from bank payout policies," Journal of Banking & Finance, Elsevier, vol. 47(C), pages 41-53.
    7. Entrop, Oliver & Merkel, Matthias F., 2018. "Managers' research education, the use of FX derivatives and corporate speculation," Passauer Diskussionspapiere, Betriebswirtschaftliche Reihe B-32-18, University of Passau, Faculty of Business and Economics.
    8. Bennett, Rosalind L. & Güntay, Levent & Unal, Haluk, 2015. "Inside debt, bank default risk, and performance during the crisis," Journal of Financial Intermediation, Elsevier, vol. 24(4), pages 487-513.
    9. Krolikowski, Marcin W., 2016. "Incentive pay and acquirer returns – The impact of Sarbanes–Oxley," The Quarterly Review of Economics and Finance, Elsevier, vol. 59(C), pages 99-111.
    10. repec:eee:finana:v:53:y:2017:i:c:p:1-11 is not listed on IDEAS
    11. Jens Hagendorff & Francesco Vallascas, 2012. "CEO Pay and Risk-taking in Banking: The Roles of Bonus Plans and Deferred Compensation in Curbing Bank Risk-taking," Chapters,in: Research Handbook on International Banking and Governance, chapter 9 Edward Elgar Publishing.
    12. Hagendorff, Jens & Vallascas, Francesco, 2011. "CEO pay incentives and risk-taking: Evidence from bank acquisitions," Journal of Corporate Finance, Elsevier, vol. 17(4), pages 1078-1095, September.
    13. Igan, Deniz & Lambert, Thomas & Wagner, Wolf & Zhang, Quxian, 2017. "Winning Connections? Special Interests and the Sale of Failed Banks," CEPR Discussion Papers 12440, C.E.P.R. Discussion Papers.
    14. Colonnello, Stefano & Herpfer, Christoph, 2018. "Do courts matter for firm value? Evidence from the U.S. court system," IWH Discussion Papers 1/2016, Halle Institute for Economic Research (IWH).
    15. repec:eee:corfin:v:47:y:2017:i:c:p:131-150 is not listed on IDEAS
    16. Balafas, Nikolaos & Florackis, Chris, 2014. "CEO compensation and future shareholder returns: Evidence from the London Stock Exchange," Journal of Empirical Finance, Elsevier, vol. 27(C), pages 97-115.
    17. repec:pal:assmgt:v:20:y:2019:i:1:d:10.1057_s41260-018-0100-0 is not listed on IDEAS
    18. Andrey Golubov & Dimitris Petmezas & Nickolaos G. Travlos, 2013. "Empirical mergers and acquisitions research: a review of methods, evidence and managerial implications," Chapters,in: Handbook of Research Methods and Applications in Empirical Finance, chapter 12, pages 287-313 Edward Elgar Publishing.
    19. repec:bla:abacus:v:53:y:2017:i:2:p:211-239 is not listed on IDEAS
    20. Esref Kaan Aslan & Halil Zaim, 2014. "Effects of M&A Integration Strategies on Organizational Performance: With Human Resource Management View," European Journal of Economic and Political Studies, Fatih University, vol. 7(2), pages 1-20.

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