The relationship between executive compensation and bid premiums in M&A's

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This study investigates the correlation between executive compensation and the bid premium in M&A’s. Most studies on the premium deal with the effects of premiums on firm performance, while this study distinguishes itself by focusing on a possible determinant of the premium: executive compensation. Both cash and equity compensation are used and it is hypothesized that the two types are positively related to the premium. Besides that, it is hypothesized that higher premiums positively influence changes in cash and equity compensation. Using a sample of 162 European M&A deals with a deal value over $100 million, and controlling for (changes in) firm size, available funds, CEO changes and profitability, no conclusive evidence is found to support the relationship between executive compensation and the premium. There is some statistical evidence for the relationship between cash compensation and the premium, but this relationship is negative instead of positive. Of the included firm and year fixed effects, firm fixed effects appear to capture some of the significance between (the change in) cash compensation and the premium. For future research it is key to get a better understanding of the complex nature of the bid premium determinants.
Faculteit der Managementwetenschappen