Agrawal is currently visiting the University of Pennsylvania from North Carolina State University. Walkling is from Ohio State University. We are grateful to Brian Betker, Atreya Chakraborty, Jocelyn Dehnert, Bob Eisenbeis, Kathleen Farrell, Jeff Jaffe, Chuck Knoeber, Ann McDermed, Paul Malatesta, David Mayers, Wayne Mikkelson, Nandu Nagarajan, David Raven-scraft, Paul Schultz, Rene Stulz, Savita Verma, Ross Watts, Justin Woods, Marc Zenner, an anonymous referee, and seminar participants at the Ohio State University, the University of Georgia, the University of Manitoba, the University of North Carolina, the University of Pittsburgh, and the American Finance Association meetings for helpful comments on earlier drafts. The authors would also like to thank Jan Clement, Heon Jeong, Jeff Harris, and Kelly Brunarski for their research assistance.
Executive Careers and Compensation Surrounding Takeover Bids
Article first published online: 30 APR 2012
1994 The American Finance Association
The Journal of Finance
Volume 49, Issue 3, pages 985–1014, July 1994
How to Cite
AGRAWAL, A. and WALKLING, R. A. (1994), Executive Careers and Compensation Surrounding Takeover Bids. The Journal of Finance, 49: 985–1014. doi: 10.1111/j.1540-6261.1994.tb00085.x
- Issue published online: 30 APR 2012
- Article first published online: 30 APR 2012
This article examines the impact of a takeover bid on the careers and compensation of chief executives of target firms. We find that acquisition attempts occur more frequently in industries where chief executive officers (CEO) have positive abnormal compensation. Target CEOs are more likely to be replaced when a bid succeeds, than when it fails. CEOs of target firms who lose their jobs generally fail to find another senior executive position in any public corporation within three years after the bid. Consistent with Fama's (1980) notion of “ex post settling up”, postbid compensation changes of managers retained after an acquisition attempt are negatively related to several measures of their prebid abnormal compensation. This result is robust to a variety of specifications and does not seem to be caused by mean reversion or selection bias. These findings are consistent with the hypothesis that a takeover bid generates additional information that is used by labor markets to discipline managers.