Kauppakorkeakoulun julkaisuportaali
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Kauppakorkeakoulu | Rahoituksen laitos | Rahoitus | 2016
Tutkielman numero: 14382
CEO compensation and managerial investment decision
Tekijä: Lano, Heidi
Otsikko: CEO compensation and managerial investment decision
Vuosi: 2016  Kieli: eng
Laitos: Rahoituksen laitos
Aine: Rahoitus
Asiasanat: rahoitus; financing; johtajat; managers; palkka; pay; palkkiot; remuneration; kannustaminen; incentives; agentit; agents; yrityskaupat; corporate acquisitions; hallitukset; boards of directors; valta; power
Sivumäärä: 60
Avainsanat: CEO compensation; agency theory; managerial incentives; acquisitions; CAPEX; strong board
The objective of this thesis is to study the changes in chief executive officer (CEO) compensation around managerial investment decision. In particular, the thesis studies the changes in CEO compensation following large acquisitions. The thesis also takes into account the possible effects of the board strength on acquisition decisions and compensation structure design. In addition, this study compares the differences between external and internal investments by selecting large capital expenditures as a comparison for examining the effects on changes in CEO compensation.

The sample consists of 302 large completed acquisitions announced between 2002 and 2012 in U.S obtained from Securities Data Company database. Information on stock prices is obtained from CRPS and all accounting information from Compustat. Further, executive compensation data is obtained from Execucomp database.

Consistent with previous literature, I find that changes in CEO pay are associated with large acquisitions, suggesting that CEOs are rewarded for completing an acquisition. In addition, I document that changes in CEO pay in general are related to negative stock returns indicating that CEO pay is more likely to be lowered after poor returns. However, after the increased regulation related to compensation disclosure in 2006, CEOs no longer receive excessive compensation only for entering M&A deals and a shift towards more performance related compensation is visible. Finally, I test whether the strength of the board affects acquisition decisions and compensation but find no simple level effect of board strength on CEO pay.
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