This article examines the impact of a takeover bid on the careers and compensation of chief executives of target firms. We find that acquisition attempts occur more frequently in industries where chief executive officers (CEO) have positive abnormal compensation. Target CEOs are more likely to be replaced when a bid succeeds, than when it fails. CEOs of target firms who lose their jobs generally fail to find another senior executive position in any public corporation within three years after the bid. Consistent with Fama's (1980) notion of “ex post settling up”, postbid compensation changes of managers retained after an acquisition attempt are negatively related to several measures of their prebid abnormal compensation. This result is robust to a variety of specifications and does not seem to be caused by mean reversion or selection bias. These findings are consistent with the hypothesis that a takeover bid generates additional information that is used by labor markets to discipline managers.

This paper presents evidence that the distribution of target ownership is related to the division of the takeover gain between the target and the bidder for a sample of successful tender offers. In the whole sample, the target's gain is negatively related to bidder and institutional ownership. In the sample of multiple-bidder contests, the target's gain increases with managerial ownership and falls with institutional ownership.

We document market anticipation of merger bids and show that less anticipated bids earn significantly higher announcement returns. Subsequent bidders in the industry experience significant and positive abnormal returns around the time of initial industry bid announcements. These results suggest that announcement period returns underestimate the wealth effects of bidding. After accounting for anticipation, bidding activity is, on average, a significant wealth-creating event. Moreover, bidders pursuing public targets increase shareholder wealth and bidders in stock swaps do not lose. These results contradict conventional wisdom. Our results shed light on the correct magnitude of acquisition returns and on the transfer of information throughout an industry around the time of an economic shock.

Shareholder-initiated proxy proposals on corporate governance issues became popular in the late 1980s as corporate takeover activity declined. We find firms attracting governance proposals have poor prior performance, as measured by the market-to-book ratio, operating return, and sales growth. There is little evidence that operating returns improve after proposals. The proposals also have negligible effects on company share values and top management turnover. Even proposals that receive a majority of shareholder votes typically do not engender share price increases or discernible changes in firm policies.

We develop a measure of free cash flow using Tobin's q to distinguish between firms that have good investment opportunities and those that do not. In a sample of successful tender offers, bidder returns are significantly negatively related to cash flow for low q bidders but not for high q bidders; further, the relation between cash flow and bidder returns differs significantly for low q and high q bidders. This result holds for several cash flow measures suggested in the literature and also in multivariate regressions controlling for bidder and contest-specific characteristics.

Using a large sample of director elections, we document that shareholder votes are significantly related to firm performance, governance, director performance, and voting mechanisms. However, most variables, except meeting attendance and ISS recommendations, have little economic impact on shareholder votes—even poorly performing directors and firms typically receive over 90% of votes cast. Nevertheless, fewer votes lead to lower “abnormal” CEO compensation and a higher probability of removing poison pills, classified boards, and CEOs. Meanwhile, director votes have little impact on election outcomes, firm performance, or director reputation. These results provide important benchmarks for the current debate on election reforms.

Recent studies suggest the transfer of privileged information via social ties but do not explicitly examine the cost of these ties to shareholders. We document a significant positive relation between stock transaction costs and a company’s social ties to the investment community. Social ties based on education and leisure activities, stronger ties, and ties to individuals responsible for trading have greater effects. Using investment connection deaths as natural experiments, we document that exogenous severance of ties reduces trading costs and trading activities by connected parties. Our evidence illustrates an important and previously undocumented consequence of social ties.

This paper presents evidence that the distribution of target ownership is related to the division of the takeover gain between the target and the bidder for a sample of successful tender offers. In the whole sample, the target's gain is negatively related to bidder and institutional ownership. In the sample of multiple-bidder contests, the target's gain increases with managerial ownership and falls with institutional ownership.

This paper presents evidence that the distribution of target ownership is related to the division of the takeover gain between the target and the bidder for a sample of successful tender offers. In the whole sample, the target's gain is negatively related to bidder and institutional ownership. In the sample of multiple‐bidder contests, the target's gain increases with managerial ownership and falls with institutional ownership.

In acquisitions, target chief executive officers (CEOs) face a moral hazard: Any personal gain from the deal could be offset by the loss of the future compensation stream associated with their jobs. Larger, more important parachutes provide greater relief for these losses. To explicitly measure the moral hazard target CEOs face, we standardize the parachute payment by the expected value of their acquisition-induced lost compensation. We examine 851 acquisitions from 1999–2007, finding that more important parachutes benefit target shareholders through higher completion probabilities. Conversely, as parachute importance increases, target shareholders receive lower takeover premia, while acquirer shareholders capture additional rents from target shareholders.