In this chapter we investigate how the structure of a CEO’s compensation package – and especially his bonus and equity-based compensation (EBC) – influences his M & A decisions. We find that a CEO with a higher proportion of EBC is more likely to initiate (serial) acquisitions. Likewise, a CEO who receives a larger bonus is more eager to be involved in takeovers. We argue that equity-based compensation along with strong performance requirements (stock options and restricted stock become vested only if specific performance criteria are met) induce managers to adopt aggressive growth strategies through M & As. Large outside shareholders reduce a firm’s takeover activity, which is also the case when a CEO holds a significant equity stake.
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Section A: Institutional Investors
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Section B: Hedge Funds
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Section C: Controlling Shareholders
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Section D: The State as Controlling Shareholder
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PART III: Ownership and Governance: The Evolving Relationship between Shareholders and the Board of Directors
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Section A: Europe
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Section B: USA and South America
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Section C: Asia
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