The Review of Corporate Finance Studies Vol. 9 No. 2 2020

Tournament Incentives and Acquisition Performance

Iftekhar Hasan¹; Marco Navone²; Thomas Y. To³; Eliza Wu³

¹ Fordham University, University of Sydney, and Bank of Finland · ² University of Technology Sydney · ³ University of Sydney

Abstract

This paper examines the impact of promotion-based tournament incentives on corporate acquisition performance. Measuring tournament incentives as the compensation ratio between the CEO and other senior executives, we show that acquirers with greater tournament incentives experience lower announcement returns. Further analysis shows that the negative effect is driven by the risk-seeking behavior of senior executives induced by tournament incentives. Our results are robust to alternative identification strategies. Our evidence highlights that senior executives, in addition to the CEO, play an influential role in acquisition decisions. (JEL G30, G34, G41, J31, J33, J62) Received: November 5, 2018; editorial decision January 6, 2020 by Editor Isil Erel.

DOI

10.1093/rcfs/cfaa001

Volume

9

Issue

2

Pages

384-419

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

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