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The Dark Side Of Executive Compensation Duration: Evidence From Mergers And Acquisitions, Zhi Li, Qiyuan Peng
The Dark Side Of Executive Compensation Duration: Evidence From Mergers And Acquisitions, Zhi Li, Qiyuan Peng
Business Faculty Articles and Research
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 …