Executive compensation and firm risk after successful mergers and acquisitions in Africa

Amewu, Godfred; Alagidede, Paul

doi:10.1002/mde.3037

Cited by 6 publications

(6 citation statements)

References 128 publications

(212 reference statements)

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“…When the acquired party completes the performance commitment, it extracts part of the excess performance as a reward and distributes it to the team of bid purchased, which is called a performance bonus. The audience for valuation adjustments is the original shareholders of the bid purchased, focusing on verifying the judgments about the value of the bid purchased before and after the M&A [ 28 ]. In contrast, the audience for performance bonus is the core team of the bid purchased, focusing on encouraging the core team through incentives so that the team can create an excess performance for the listed enterprise and reduce the difficulty of integration after M&A.…”

Section: Methodsmentioning

confidence: 99%

Influence of the enterprise’s intelligent performance evaluation model using neural network and genetic algorithm on the performance compensation of the merger and acquisition parties in the commitment period

Luo¹,

Da²

2021

PLoS ONE

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The purpose is to study the performance compensation of the bid purchased during the mergers and acquisitions (M&A) process. An intelligent model of enterprise performance appraisal is built to analyze the performances of the acquired enterprises. First, the evaluation indicators of enterprise performance are selected from both financial and non-financial aspects. An enterprise performance appraisal model is established based on the neural networks and optimized by the factor analysis method and Genetic Algorithm (GA). The principal factors affecting enterprise performance are analyzed. Then the M&A parties’ performances during the M&A commitment period under the earnings compensation mechanism are analyzed quantitatively. Corresponding hypotheses and evaluation indicators are established. Mean test results and regression analyses demonstrate that the hypotheses proposed are valid under particular circumstances. Introducing the earnings compensation mechanism during the M&A process can improve the enterprise performance effectively so that the earnings forecasted in the commitment period are significantly higher than the historical profitability. Hence, the earnings compensation mechanism plays a positive role in guiding enterprise performance. Comparison with models proposed in previous research reveals that the output error ratio of the designed corporate performance evaluation model is 1.16%, which can effectively evaluate corporate performance. The above results provide a reference for studying the impact of the earnings compensation mechanism on enterprise performance during the M&A process.

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Section: Methodsmentioning

confidence: 99%

Influence of the enterprise’s intelligent performance evaluation model using neural network and genetic algorithm on the performance compensation of the merger and acquisition parties in the commitment period

Luo¹,

Da²

2021

PLoS ONE

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“…Camuffo (2009) studies compensation packages of 40 firms (FTSE/MIB Index) and finds that long‐term managerial incentive constitutes about 30% of the entire executive compensation package. Disproportionate composition of short and long‐term incentive packages for executives could encourage them to falsify and manipulate financial figures about their performance in favour of their short‐term benefits (Amewu & Alagidede, 2019; Harris, 2009; Harris & Bromiley, 2007).…”

Section: Introductionmentioning

confidence: 99%

Mergers, executive compensation and firm performance: The case of Africa

Amewu

Alagidede

2020

Manage Decis Econ

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This study examines the impact of executive compensation on firm performance after successful mergers and acquisitions (M&A) in Africa between 2005 and 2016. Using accounting and financial performance measures and controlling for firm, deal and corporate governance factors, we show that executive compensation induced by M&A in Africa negatively affect the performance of listed firms. There is also evidence to support the impact of firm size, deal size, target destination, foreign ownership, diversification, outside board representation and executive ownership on the pay‐performance nexus. Besides, corporate governance factors in Africa, generally, worsen firm performance, especially for cash and total pay.

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“…Miller et al (2002) stated that systematic risk and total CEO compensation go up in tandem by keeping the risk premium argument of the agency theory. Amewu and Alagidede (2019) found a positive association between systematic risk and stock-based incentives. Black (2020) also contributed to the vein of the risk-sharing view of agency theory in their studies.…”

Section: Introductionmentioning

confidence: 94%

Does risk matter for executive compensation?

Eklund

2021

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Purpose The purpose of this study is to examine whether chief executive officer (CEOs) are paid for the systematic and/or unsystematic risks and whether there is any optimum risk premium level in the executive pay. Design/methodology/approach Firm and year fixed effect panel data regression was used to estimate the relationship between total CEO compensation and systematic (market) and unsystematic (firm) risks. Findings There is no nexus between CEO pay and unsystematic (diversifiable) risk; however, the association between CEO compensation and systematic (undiversifiable) risk is positively significant in line with agency theory. Moreover, it is revealed that this positive relationship has an optimum point (curvilinear). Research limitations/implications This paper contributes to the controversial argument in the literature by investigating the situation in the Swiss market. Switzerland is an exemplary country because of its direct democracy (consensus) structure for executive pay. This study is limited by the fact that only total CEO compensation is analyzed. Practical implications As a practical implication, it is shown that after the optimal point, the higher compensation does not motivate the CEOs to take higher risks and does not provide the organizations with any additional benefit. Originality/value The finding of this study supports agency theory’s risk premium assumption and provides additional evidence to the contradictory results in the literature with a new country setting that has paramount importance in executive compensation phenomena. It is a comparative finding with prior literature also outlines the future research area in the risk and compensation literature.

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Executive compensation and firm risk after successful mergers and acquisitions in Africa

Cited by 6 publications

References 128 publications

Influence of the enterprise’s intelligent performance evaluation model using neural network and genetic algorithm on the performance compensation of the merger and acquisition parties in the commitment period

Influence of the enterprise’s intelligent performance evaluation model using neural network and genetic algorithm on the performance compensation of the merger and acquisition parties in the commitment period

Mergers, executive compensation and firm performance: The case of Africa

Does risk matter for executive compensation?

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