CEO Compensation Changes Following Acquisitions

Leonce Bargeron and David J. Denis

♦ We find that CEO compensation increases following acquisitions only in those deals in which acquirer stock is used as the method of payment. These compensation increases are driven by increases in equity-based compensation, and are concentrated in riskier acquirers, riskier acquisitions, and in acquirers whose CEOs have low exposure to the stock price. We find little support for traditional agency cost explanations of changes in CEO pay following acquisitions. However, our findings are broadly consistent with compensation changes representing a contracting solution to a two-sided adverse selection problem that is present only in stock acquisitions.

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