TY - JOUR
T1 - Why do managers undertake acquisitions? An analysis of internal and external rewards for acquisitiveness
AU - Avery, Christopher
AU - Chevalier, Judith A.
AU - Schaefer, Scott J
N1 - Funding Information:
We thank Andrea Densham, Paul Hinton, Judy Lubin, Matt Sevick, and Henry Voskoboynik for excellent research assistance. We thank David Dranove, Rachel Hayes, Jim Hines, Hamid Mehran, Paul Oyer, Fiona Scott Morton, Dan Spulber, and seminar participants at the Kennedy School of Government and the Graduate School of Business at Stanford for helpful comments. The comments of two anonymous referees also improved the quality of this article. We are grateful for research support provided by the Kennedy School of Government (Avery), the Graduate School of Business at the University of Chicago (Chevalier), and Kellogg Graduate School of Management (Schaefer).
PY - 1998/4
Y1 - 1998/4
N2 - We study the effect of a firm's acquisitions on the subsequent career of its chief executive officer (CEO) by examining a sample of executives who undertook large acquisitions between 1986 and 1988. We find that acquirers do not have significantly different compensation growth from executives who did not undertake acquisitions. Further, we find the effect of acquisitions on compensation does not depend on whether the acquisition increased shareholder wealth, nor on whether the acquisition was diversifying. We do find a benefit to acquisitions, however, because CEOs who completed acquisitions are significantly more likely to gain outside directorships than those who did not complete acquisitions. Our results do not support the argument that CEOs have an incentive to pursue acquisitions in order to increase their own compensation, but lend support to the argument that CEOs have an incentive to pursue acquisitions to increase their prestige and standing in the business community.
AB - We study the effect of a firm's acquisitions on the subsequent career of its chief executive officer (CEO) by examining a sample of executives who undertook large acquisitions between 1986 and 1988. We find that acquirers do not have significantly different compensation growth from executives who did not undertake acquisitions. Further, we find the effect of acquisitions on compensation does not depend on whether the acquisition increased shareholder wealth, nor on whether the acquisition was diversifying. We do find a benefit to acquisitions, however, because CEOs who completed acquisitions are significantly more likely to gain outside directorships than those who did not complete acquisitions. Our results do not support the argument that CEOs have an incentive to pursue acquisitions in order to increase their own compensation, but lend support to the argument that CEOs have an incentive to pursue acquisitions to increase their prestige and standing in the business community.
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U2 - 10.1093/oxfordjournals.jleo.a023398
DO - 10.1093/oxfordjournals.jleo.a023398
M3 - Article
AN - SCOPUS:0032378061
VL - 14
SP - 24
EP - 43
JO - Journal of Law, Economics, and Organization
JF - Journal of Law, Economics, and Organization
SN - 8756-6222
IS - 1
ER -