Merger Activity and Executive Pay

Peter Wright, Steve Thompson and Sourafel Girma

No 3255, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This Paper examines the impact of mergers and acquisitions on the remuneration of the CEOs in a large unbalanced panel of UK firms, over the period 1981-96. We find significant and substantial executive pay increases in excess of those generated by the growth in firm size consequent upon the merger. This is consistent with the view that mergers reveal information about the quality of management that is useful to the firm?s remuneration committee. Executive pay is, however, nine times more sensitive to internal growth than to growth as a result of acquisition. Furthermore, there is some evidence that hostile transactions generate smaller pay effects than friendly deals, probably because they are followed, at some remove, by size-reducing divestments. When mergers are distinguished by their impact on shareholder wealth we find that CEOs engaging in ?bad? (ie wealth-reducing) acquisitions experience significantly lower remuneration than their counterparts whose deals meet with market approval. This result suggests that shareholder-principals have at least some success in penalising managers for unwarranted empire-building mergers.

Keywords: Mergers; Acquisition; Executive pay (search for similar items in EconPapers)
JEL-codes: J20 J30 (search for similar items in EconPapers)
Date: 2002-03
New Economics Papers: this item is included in nep-ifn
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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