CEO deal-making activities and compensation

Eliezer M. Fich, Laura T. Starks and Adam S. Yore

Journal of Financial Economics, 2014, vol. 114, issue 3, 471-492

Abstract: Using transactions generally overlooked in the compensation literature—joint ventures, strategic alliances, seasoned equity offerings (SEOs), and spin-offs—we find that, beyond compensation for increases in firm size or complexity, chief executive officers (CEOs) are rewarded for their deal-making activities. Boards pay CEOs for the core motivation of the deal, as well as for deal volume. We find that compensating for volume instead of core value creation occurs under weak board monitoring and that in deal-making firms, neither CEO turnover nor pay-for-performance responds to underperformance. We introduce an input monitoring explanation for these results: boards compensate for deal volume because of their inability to perfectly monitor outputs.

Keywords: Executive compensation; Agency problems; Busy boards; Joint ventures; SEOs; Spin-offs; Strategic alliances; Deal-making (search for similar items in EconPapers)
JEL-codes: G30 G34 J33 K22 M52 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:114:y:2014:i:3:p:471-492

DOI: 10.1016/j.jfineco.2014.07.011

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