Form of Control: A Critical Determinant of Acquisition Performance and Ceo Rewards

Abstract

Based on two research streams, we investigate whether acquiring firms’ form of control might be associated differently with CEO rewards or excess returns. We theoretically reason that in manager‐controlled corporations acquisitions may be detrimental to the interests of shareholders and CEO rewards might be based on nonperformance criteria. In owner‐manager‐controlled and owner‐controlled firms acquisitions may benefit the stockholders. While CEO rewards of owner‐controlled firms may be based on performance criteria, however, executive rewards of owner‐manager‐controlled firms may be based on both performance and nonperformance factors. The findings indicate that for manager‐controlled firms acquisition announcements result in negative excess returns to shareholders. For owner‐controlled and owner‐manager‐controlled firms such announcements result in positive excess returns. The findings also suggest that increases in corporate size due to acquisitions are significantly and positively associated with CEO rewards of manager‐controlled and owner‐manager‐controlled firms. For owner‐controlled firms, excess returns are significantly and positively associated with CEO rewards. © 1997 by John Wiley & Sons, Ltd.

Cross-border mergers and acquisitions by Chinese listed companies: A principal–principal perspective

“…Agency theory would suggest that investors are less likely to perceive managerial opportunism in M&A if they are undertaken by companies with effective corporate governance mechanisms (Corenett, Hovakimianb, Paliac, & Tehranian, 2003;Kang, 2006;Kroll, Wright, Toombs, & Leavell, 1997;Matsusaka, 1993). This creates a conundrum for Chinese publicly-listed firms in which government is the dominant owner and is responsible for the monitoring role.…”

The danger of misinterpreting short-window event study findings in strategic management research: an empirical illustration using horizontal acquisitions

“…Hendricks and Quality award 0 to 1, Ϫ1 to 1 Singhal (1996) Klassen and Environmental awards and Ϫ1 to 1 McLaughlin (1996) environmental crises Kabir et al (1997) Takeover responses (defenses) Ϫ20 to 20 Kroll et al (1997) Form of control in acquisitions Ϫ1 to 0, Ϫ3 to 3, Ϫ5 to 5…”

Outside board monitoring and the economic outcomes of acquisitions: a test of the substitution hypothesis

“…Note that concentrated shareholdings by blockholder investors may provide ownership incentives for effective monitoring (Kroll et al, 1997;Wright et al, 2002a). Similarly, significant shareholdings of CEOs may provide effective monitoring-self-monitoring elicited by their equity stakes (Fama, 1980;Fama and Jensen, 1983;Griffith, 1999).…”

“…There is an increasing amount of literature on director monitoring, ownership control, managerial discretion and the economic outcomes of corporate strategies (e.g., Johnson et al, 1993;Kroll et al, 1997;Rhoades et al, 2000). Based on agency theory, our intention is to provide additional insight into the efficacy of a governance mechanism, namely, the substitution effect of monitoring by the outside directors in determining the economic outcomes of corporate acquisition strategy.…”