Date of Award
1-1-2009
Degree Name
Doctor of Philosophy
Department
Business Administration
First Advisor
Davidson,Wallace
Second Advisor
Musumeci,James
Abstract
Executive compensation and its potential importance in aligning shareholder and management interests has been an extensively researched area within corporate finance. We study executive compensation while addressing several unresolved issues in the literature. In essay one, we examine CEO compensation following spin-offs. We find that CEOs are rewarded for undertaking a spin-off. Change in compensation for CEOs of spin-off firms following spin-offs is significantly higher than that for matching firms. We also find that the increase in compensation following spin-off is negatively associated with the change in firm size following the spin-off. Unlike mergers and acquisitions through which increases in executive compensation seem to be more related to size than performance, we show that CEO compensation increases following spin-offs even though spin-offs reduce firm size. In the second essay, we study changes in CEO salaries and their relation to firm performance. We document that changes in CEO salaries, which are a more permanent form of compensation change, are related to long term measures of performance. We find that CEO salaries change much more in relation to long term stock returns than short term stock returns. We also study the asymmetry in the relation between salary changes and firm performance. We find that while short term negative returns are related to changes in CEO salaries; only long term positive returns are significantly associated with CEO salary changes. This asymmetric relation is also present between total CEO compensation changes and stock returns. In essay three, we examine managerial decision horizons for target and acquirer firms in mergers and acquisitions. We find that acquirer CEOs have longer decision horizons than target firm CEOs in stock financed mergers. Acquirer CEOs in cash financed mergers and acquisitions also have longer decision horizons than target CEOs. Acquirer CEOs in both stock and cash financed mergers have significantly higher proportions of equity based compensation and significantly lower proportions of cash based compensation than target CEOs. In logistic regressions, measures of decision horizons for target and acquirer CEOs are not significantly related to the odds of stock financing in mergers and acquisitions. Our results do not offer strong support to the implications from the Shleifer and Vishny theory on the rationale for stock financed acquisitions.
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