TY - UNPB
T1 - Growth-Promoting Bonuses and Mergers and Acquisitions
AU - Bakke, Tor-Erik
AU - Kronlund, Mathias
AU - Mahmudi, Hamed
AU - Virani, Aazam
PY - 2023/4/9
Y1 - 2023/4/9
N2 - One-third of U.S. top executives have bonus incentives that are
explicitly tied to the firm's size. We study how such "growth-promoting
bonuses" influence firms' mergers and acquisitions (M&A) activities.
We find that firms with bonus structures that promote growth are more
prone to make acquisitions—especially acquisitions of a scale that help
meet the bonus size target. We use shocks to sales from plausibly
exogenous exchange-rate changes for exporting firms to identify these
effects. Acquisitions by firms with growth-promoting bonuses have
significantly lower abnormal returns, destroying value for the acquirers
on average. These lower acquirer returns can be attributed to the
selection of targets with lower synergies and, to a lesser extent,
higher premiums paid. The growth-promoting bonuses tend to be
sufficiently large such that—despite negative acquirer returns—the net
monetary effect for executives who meet their sales bonus targets with a
merger remains significantly positive.
AB - One-third of U.S. top executives have bonus incentives that are
explicitly tied to the firm's size. We study how such "growth-promoting
bonuses" influence firms' mergers and acquisitions (M&A) activities.
We find that firms with bonus structures that promote growth are more
prone to make acquisitions—especially acquisitions of a scale that help
meet the bonus size target. We use shocks to sales from plausibly
exogenous exchange-rate changes for exporting firms to identify these
effects. Acquisitions by firms with growth-promoting bonuses have
significantly lower abnormal returns, destroying value for the acquirers
on average. These lower acquirer returns can be attributed to the
selection of targets with lower synergies and, to a lesser extent,
higher premiums paid. The growth-promoting bonuses tend to be
sufficiently large such that—despite negative acquirer returns—the net
monetary effect for executives who meet their sales bonus targets with a
merger remains significantly positive.
KW - Merger and Acquisitions
KW - Executive Compensation
KW - Non-equity Incentive Plans
KW - Growth-promoting Bonuses
U2 - 10.2139/ssrn.4396815
DO - 10.2139/ssrn.4396815
M3 - Working paper
T3 - European Corporate Governance Institute – Finance Working Paper
BT - Growth-Promoting Bonuses and Mergers and Acquisitions
ER -