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Journal of Finance Vol. 49 No. 3 1994

Executive Careers and Compensation Surrounding Takeover Bids

Anup Agrawal; Ralph A. Walkling1

1 Agrawal is currently visiting the University of Pennsylvania from North Carolina State University. Walkling is from Ohio State University. We are grateful to Brian Betker, Atreya Chakraborty, Jocelyn Dehnert, Bob Eisenbeis, Kathleen Farrell, Jeff Jaffe, Chuck Knoeber, Ann McDermed, Paul Malatesta, D

Abstract

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.

DOI
10.1111/j.1540-6261.1994.tb00085.x
Volume
49
Issue
3
Pages
985-1014
Language
en
Sources
crossref openalex

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