Journal of Financial and Quantitative Analysis Vol. 56 No. 8 2021
The Dark Side of Executive Compensation Duration: Evidence from Mergers and Acquisitions
Abstract
We find that contrary to popular belief, CEOs with long compensation duration do not make better long-term investment decisions. Using a comprehensive pay duration measure, we find that acquisitions conducted by CEOs with long compensation duration receive more negative announcement returns, and experience significantly worse post-acquisition abnormal operating and stock performance, compared with deals conducted by CEOs with short compensation duration. The negative correlation between compensation duration and mergers and acquisitions (M&A) performance is driven by long-term time-vesting plans, not by performance-vesting plans. The results suggest that extending CEO pay horizons without implementing performance requirements is insufficient to improve managerial long-term investment decisions.
- DOI
- 10.1017/s0022109020000812
- Volume
- 56
- Issue
- 8
- Pages
- 2963-2997
- Language
- en
- Sources
- openalex bibtex:phds-export.bib crossref