Liability protection,director compensation,and incentives |
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| Affiliation: | 1. School of Business and Management, American University of Sharjah, Sharjah 26 666, United Arab Emirates;2. The University of Texas at San Antonio, Department of Finance, College of Business, One UTSA Circle, San Antonio, TX 78249, United States;3. University of South Florida, Department of Finance, College of Business, Tampa, FL 33620, United States;4. Virginia Tech, Department of Finance, Insurance, and Law, Pamplin College of Business, Blacksburg, VA 24061, United States;1. Research Department, Financial Stability Wing, Norges Bank (Central Bank of Norway), Bankplassen 2, P.O. Box 1179 Sentrum, 0107 Oslo, Norway;2. Market Infrastructure Division, Financial Stability, Bank of England, Threadneedle Street, London EC2R 8AH, United Kingdom;1. Department of Economics and Finance, University of Guelph, 50 Stone Road East, Guelph, Ontario N1G 2W1, Canada;2. Department of Economics, Queen’s University, 94 University Avenue, Kingston, Ontario K7L 3N6, Canada;1. Département de la finance, HEC Montréal, Université de Montréal, 3000, chemin de la Côte-Ste-Catherine, Montréal, QC H3T2A7, Canada;2. Department of Finance, Syracuse University, Martin J. Whitman School of Management, 721 University Avenue, Syracuse, NY 13244, United States |
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| Abstract: | We examine the effect of liability protection on the compensation of directors and on takeover outcomes. Consistent with the hypothesis that directors require additional compensation if they bear liability, we find that director compensation is higher for firms that provide less liability protection. Examining takeovers, we find evidence that takeovers of firms with protected directors are less likely to succeed. Moreover, firms with protected directors are more likely to accept a lower bid premium, and this finding is consistent with protected directors having reduced incentives to negotiate for the highest possible price during the acquisition. Overall, the results are consistent with the notion that director liability provisions have a significant impact both on director compensation and director duty. |
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| Keywords: | Director liability Director compensation Takeovers |
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