On the Importance of Golden Parachutes
Speaker
Abstract
| While the previous literature addresses the existence of golden parachutes, it does not consider their relative importance to CEOs. This relative importance is critical because it correlates with the moral hazard problem facing a target firm’s CEO: the executive that has important influence over the deal’s outcome. A parachute that is either too large or too small relative to other executive compensation could produce ‘unyielding resistance’ or ‘a rush to sale’ despite the acquisition price offered. Either of these attitudes is likely to harm target shareholders. We examine 851 acquisition offers from 1999-2007 to investigate whether parachutes benefit the target CEOs receiving them, the shareholders in the firms granting them, or both. Although we do find evidence of incentive alignment and ex-post settling up, our primary results are consistent with managerial rent extraction. |
| Contact information: |
| Myra Lissenberg |
