CEO Contracting and Antitakeover Amendments

Authors

  • KENNETH A. BOROKHOVICH,

  • KELLY R. BRUNARSKI,

  • ROBERT PARRINO

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    • Borokhovich is from Wayne State University, Brunarski is from the Ohio State University, and Parrino is from the University of Texas at Austin. We thank Jim Brickley, K. C. Chan, Lane Daley, Mark Huson, Scott Lee, John Martin, Victoria McWilliams, Nandu Nayar, Joe Reising, Paul Schultz, René Stulz, Teresa Trapani, Ralph Walkling, Marc Zenner, participants in a seminar at the University of Alberta, the editor, David Mayers, and an anonymous referee for their comments. Maura Skill and Derek White provided research assistance for this project.


ABSTRACT

This article examines incentives for adopting antitakeover charter amendments (ATAs) that are associated with compensation contracts. The evidence is consistent with the hypothesis that antitakeover measures such as ATAs help managers protect above-market levels of compensation. Chief executive officers (CEOs) of firms that adopt ATAs receive higher salaries and more valuable option grants than CEOs at similar firms that do not adopt them. Furthermore, the magnitude of this difference increases following ATA adoption. The evidence is inconsistent with the hypothesis that ATAs facilitate the writing of efficient compensation contracts.

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