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The shielding of CEO cash compensation from post‐acquisition earnings' charges

The shielding of CEO cash compensation from post‐acquisition earnings' charges Purpose – This study aims to examine whether CEO compensation is shielded from the negative effects of restructuring charges and asset impairments following the acquisition of the controlling interest in the stock of another corporation. Design/methodology/approach – Regression tests using CEO cash compensation as the dependent variable, and restructuring charges, goodwill impairments, and other asset impairments associated with a target firm as independent test and control variables. Findings – The results indicate that CEO cash compensation is increased when an acquiring firm with respect to the target firm records restructuring charges. Goodwill impairments have no effect on CEO cash compensation. Research limitations/implications – This study is limited to the extent that it only considers CEO cash compensation. A future area of research is to examine the association of total CEO compensation and post‐acquisition earnings” charges. Shareholders encourage CEOs to proceed with synergistic restructuring following a merger/acquisition by increasing their compensation. Originality/value – This study contributes to the literature by concluding that compensation committees consider the contextual nature of earnings” charges and the CEO's direct responsibility for the transaction in the determination of CEO compensation. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Managerial Finance Emerald Publishing

The shielding of CEO cash compensation from post‐acquisition earnings' charges

Managerial Finance , Volume 34 (5): 16 – Apr 11, 2008

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References (26)

Publisher
Emerald Publishing
Copyright
Copyright © 2008 Emerald Group Publishing Limited. All rights reserved.
ISSN
0307-4358
DOI
10.1108/03074350810866171
Publisher site
See Article on Publisher Site

Abstract

Purpose – This study aims to examine whether CEO compensation is shielded from the negative effects of restructuring charges and asset impairments following the acquisition of the controlling interest in the stock of another corporation. Design/methodology/approach – Regression tests using CEO cash compensation as the dependent variable, and restructuring charges, goodwill impairments, and other asset impairments associated with a target firm as independent test and control variables. Findings – The results indicate that CEO cash compensation is increased when an acquiring firm with respect to the target firm records restructuring charges. Goodwill impairments have no effect on CEO cash compensation. Research limitations/implications – This study is limited to the extent that it only considers CEO cash compensation. A future area of research is to examine the association of total CEO compensation and post‐acquisition earnings” charges. Shareholders encourage CEOs to proceed with synergistic restructuring following a merger/acquisition by increasing their compensation. Originality/value – This study contributes to the literature by concluding that compensation committees consider the contextual nature of earnings” charges and the CEO's direct responsibility for the transaction in the determination of CEO compensation.

Journal

Managerial FinanceEmerald Publishing

Published: Apr 11, 2008

Keywords: Compensation; Chief executives; Acquisitions and mergers; Asset protection

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