Why do managers undertake acquisitions? An analysis of internal and external rewards for acquisitiveness

Christopher Avery, Judith A. Chevalier, Scott J Schaefer

Research output: Contribution to journalArticlepeer-review

54 Scopus citations

Abstract

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.

Original languageEnglish (US)
Pages (from-to)24-43
Number of pages20
JournalJournal of Law, Economics, and Organization
Volume14
Issue number1
DOIs
StatePublished - Apr 1998

ASJC Scopus subject areas

  • Economics and Econometrics
  • Organizational Behavior and Human Resource Management
  • Law

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