Tournament-based incentives and mergers and acquisitions |
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| Institution: | 1. Itarle AG, Switzerland;2. School of Management, University of Bath, UK;3. Essex Business School, University of Essex, UK;1. Department of Finance and Marketing, Faculty of Economics, Cantoblanco Campus, Madrid 28049, Spain;2. Research Affiliate, Hanken Center for Corporate Governance. Hanken School of Economics. Arkadiankatu 22. Helsinki 00100, Finland;1. Jiangxi University of Finance and Economics, China;2. Massey University, New Zealand;1. Manning School of Business, University of Massachusetts Lowell, 72 University Avenue, Lowell, MA 01854, United States of America;2. Robert C. Vackar College of Business & Entrepreneurship, University of Texas Rio Grande Valley, 1201 West University Dr., Edinburg, TX 78539, United States of America |
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| Abstract: | This research examines the relation between tournament-based incentives, which are proxied by the difference between a firm's CEO pay and the median pay of the senior managers, and mergers and acquisitions (M&As). We find that tournament-based incentives are positively related to firm acquisitiveness and acquiring firms' stock and operating performance. Further analysis indicates that positive acquisition performance increases the likelihood of the CEO being promoted from inside the acquiring firm. Our evidence is consistent with the view that tournament-based incentives motivate acquiring firms' managers to make greater efforts and take more risk that result in superior acquisition performance. |
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