Does Threat of Dismissal Constrain Acquisition Premium in CEO Pay?

Swarnodeep Homroy

Economica, 2015, vol. 82, 1349-1371

Abstract: type="main" xml:id="ecca12163-abs-0001">

This paper shows that the likelihood of post-acquisition CEO turnover can act as a constraint on risky acquisition decisions. The acquisition premium in pay decreases by over 50% once the dismissal risk is controlled for. Given a smaller pay premium for undertaking acquisitions and a non-zero risk of dismissal, shareholders are shown to be able to exercise some control over managerial incentives to engage in risky acquisitions through the mechanism for dismissal.

Date: 2015
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