We examine the relation between managers' financial interests and firm performance. Since the relation could go in either direction, we cast the analysis in a simultaneous equations framework. For firms involved in acquisitions, we find that acquisition performance and Tobin's Q ratios affect the size of managers' stockholdings. We find no evidence, however, that larger stockholdings lead to better performance. Perhaps management is effectively disciplined by competition in product and labor markets. Alternatively, it may not be necessary for top executives to own stock to be residual claimants. And finally, higher ownership might multiply the opportunities to appropriate corporate wealth.

ABSTRACT This article examines the motives underlying the payment method in corporate acquisitions. The findings support the notion that the higher the acquirer's growth opportunities, the more likely the acquirer is to use stock to finance an acquisition. Acquirer managerial ownership is not related to the probability of stock financing over small and large ranges of ownership, but is negatively related over a middle range. In addition, the likelihood of stock financing increases with higher pre‐acquisition market and acquiring firm stock returns. It decreases with an acquirer's higher cash availability, higher institutional shareholdings and blockholdings, and in tender offers.

This article examines the motives underlying the payment method in corporate acquisitions. The findings support the notion that the higher the acquirer's growth opportunities, the more likely the acquirer is to use stock to finance an acquisition. Acquirer managerial ownership is not related to the probability of stock financing over small and large ranges of ownership but is negatively related over a middle range. In addition, the likelihood of stock financing increases with higher preacquisition market and acquiring firm stock returns. It decreases with an acquirer's higher cash availability, higher institutional shareholdings and blockholdings, and in tender offers.

This article examines the motives underlying the payment method in corporate acquisitions. The findings support the notion that the higher the acquirer's growth opportunities, the more likely the acquirer is to use stock to finance an acquisition. Acquirer managerial ownership is not related to the probability of stock financing over small and large ranges of ownership, but is negatively related over a middle range. In addition, the likelihood of stock financing increases with higher pre-acquisition market and acquiring firm stock returns. It decreases with an acquirer's higher cash availability, higher institutional shareholdings and blockholdings, and in tender offers.

The question of whether the design of the corporate executive pay package reflects an attempt to reduce agency costs between shareholders and managers is addressed. The components of senior executive pay are found to vary systematically across firms in a manner that cannot easily be explained by tax effects, and which would indicate that individual elements of pay are aimed at controlling for limited horizon and risk exposure problems. Managerial decisions and the structure of managerial pay therefore appear to be interrelated.

Using data from the 1998 proxy season, we find that higher levels of potential dilution from management-sponsored, executive-only stock option plans result in significantly negative cumulative abnormal returns in the 3-day period surrounding the proxy date. We also present evidence of a significantly negative relationship between the percentage vote against the option proposal and the percentage change in executive pay from the 1998 to 1999 compensation years. We interpret this finding to support the idea that boards of directors are responsive to shareholder concerns about CEO option awards following a high level of shareholder opposition.

This paper examines the hypothesis that an important role of corporate takeovers is to discipline the top managers of poorly performing target firms. The authors document that the turnover rate for the top manager of target firms in tender offer-takeovers significantly increases following completion of the takeover and that prior to the takeover these firms were significantly under-performing other firms in their industry as well as other target firms which had no post-takeover change in the top executive. We interpret the results to indicate that the takeover market plays an important role in controlling the nonvalue maximizing behavior of top corporate managers.

ABSTRACT This paper examines the hypothesis that an important role of corporate takeovers is to discipline the top managers of poorly performing target firms. We document that the turnover rate for the top manager of target firms in tender offer‐takeovers significantly increases following completion of the takeover and that prior to the takeover these firms were significantly under‐performing other firms in their industry as well as other target firms which had no post‐takeover change in the top executive. We interpret the results to indicate that the takeover market plays an important role in controlling the nonvalue maximizing behavior of top corporate managers.