Golden parachutes, managerial incentives and shareholders' wealth

Abstract

If you would like to write for this, or any other Emerald publication, then please use our Emerald for Authors service information about how to choose which publication to write for and submission guidelines are available for all. Please visit www.emeraldinsight.com/authors for more information. About Emerald www.emeraldinsight.comEmerald is a global publisher linking research and practice to the benefit of society. The company manages a portfolio of more than 290 journals and over 2,350 books and book series volumes, as well as providing an extensive range of online products and additional customer resources and services.Emerald is both COUNTER 4 and TRANSFER compliant. The organization is a partner of the Committee on Publication Ethics (COPE) and also works with Portico and the LOCKSS initiative for digital archive preservation. AbstractPurpose -The purpose of this paper is to examine the effects of golden parachutes on shareholders' wealth when the measure is used as a compensation device instead of a takeover defense. The results show that the adoption of the measure has a negative influence on shareholders' wealth. These negative results are more prevalent for firms with an operating performance above their industry peers and are significantly influenced by the previous performance of the firm and the size of the golden parachute. Design/methodology/approach -Event study and regression analysis. Findings -The results show that the adoption of the measure has a negative influence on shareholders' wealth. These negative results are more prevalent for firms with an operating performance above their industry peers and are significantly influenced by the previous performance of the firm and the size of the golden parachute. Practical implications -Investors will have more information about the reaction of stock markets at the announcement of golden parachutes. Originality/value -The paper presents a new evaluation of the adoption of golden parachutes on shareholders' wealth when the measure is used as a compensation device instead of a takeover defense.

Executive compensation and corporate social responsibility: does a golden parachute matter?

“…Scholars have extensively engaged in the explication and investigation of the GP to shed more light on the inclusion of this clause in executive compensation contracts (Bebchuk et al , 2014; Brusa et al , 2009; Fich et al , 2013; Jenter and Lewellen, 2015; Mansi et al , 2013; Ujah and Okafor, 2019, Okafor and Ujah, 2016). This present study subscribes to the reasoning put forward by the proponents of the GP.…”

Motivating high‐impact innovation: Evidence from managerial compensation contracts

“…And fourth, our work also contributes to the ongoing policy debate about managerial golden parachutes. While advocates argue that parachutes are a necessary part of a competitive pay package, required to attract and retain talented executives (see, e.g., Brusa, Lee, & Shook, 2009;Harris, 1990;Knoeber, 1986;Lambert & Larcker, 1985), opponents criticize golden parachutes because they protect or even reward the manager following poor performance (e.g., Bebchuk & Fried, 2004;Daley & Subramaniam, 1995;Singh & Harianto, 1989;Wade, O'Reilly, & Chandratat, 1990). In this study, we provide the first empirical evidence that compensating managers with golden parachutes could be part of an optimal incentive scheme that motivates more high-risk, novel innovation.…”