Value creation around merger waves: The role of managerial compensation

Hillier, David; McColgan, Patrick; Tsekeris, Athanasios

doi:10.1111/jbfa.12419

Cited by 14 publications

(8 citation statements)

References 88 publications

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“…Accruals should increase in expected sales growth and in earnings as firms invest in working capital (Kothari et al 2005; Dechow et al 1998). Moreover, risk‐taking incentives are a function of investment opportunities (Guay 1999) and also incentivize managers towards growth (Croci and Petmezas 2015; Hillier et al 2020; Hanlon et al 2003). Indeed, Hribar and Nichols (2007) find improper discretionary accrual specifications produce spurious correlations between another attribute of equity compensation, delta, and earnings management.…”

Section: Prior Literaturementioning

confidence: 99%

Risk‐Taking Incentives and Earnings Management: New Evidence*

Mayberry

Park

Tian

2021

Contemporary Accting Res

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We reexamine the positive association between stock option vega and earnings management previously documented by Armstrong, Larcker, Ormazabal, and Taylor (2013; henceforth, ALOT). In contrast to ALOT, prior empirical research and practitioner literature emphasizes earnings management's goals of increasing stock price and reducing volatility. Specifically, we assess whether the association is robust to (i) employing discretionary accruals that are less prone to misspecification, (ii) focusing on a more recent time period, and (iii) including additional controls for period-specific factors. Our main findings are as follows. First, we fail to find a positive association between vega and earnings management after controlling for performance-related misspecification in discretionary accruals. Second, we find no association between vega and earnings management in a more recent time period, suggesting the results of ALOT may be sensitive to period-specific factors. Last, the positive association vanishes when we control for year fixed effects, growth opportunities, or monitoring, suggesting the original results of ALOT's research may be sensitive to correlated, omitted variables. Overall, our results question the extent to which vega incentivizes earnings management. Our results may be of interest to boards of directors in designing executive compensation contracts, to regulators in crafting policies that maintain high levels of financial reporting quality, and to researchers seeking to identify settings where earnings management incentives are most salient.

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Section: Prior Literaturementioning

confidence: 99%

Risk‐Taking Incentives and Earnings Management: New Evidence*

Mayberry

Park

Tian

2021

Contemporary Accting Res

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“…The regression results reveal that executive monetary compensation does not positively affect M&A performance, so hypothesis 1 is invalid. Hillier et al (2020) have shown that the monetary compensation system, as the most direct incentive method, can enhance executives’ work enthusiasm and promote executives’ efforts to improve corporate value [ 72 ]. However, the results of this study show that the monetary compensation system of listed media companies in China is ineffective during corporate transformation and upgrading.…”

Section: Discussionmentioning

confidence: 99%

The incentive role of media companies’ executive compensation system in transformation and upgrading: Evidence from listed media companies in China

Yang¹,

Xu²,

Zhang³

et al. 2023

PLoS ONE

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Media companies in various countries are transforming and upgrading to improve their competitiveness in the digital economy. However, existing research only focuses on the issue of how media companies transform while ignoring whether internal governance mechanisms such as compensation incentives can promote corporate value during the transformation process. According to the principal-agent theory, we examined the incentive effects of the executive compensation system in terms of monetary compensation, equity compensation, and perks in a sample of Chinese media companies in the process of transformation and upgrading. The results have revealed that monetary compensation does not have a significant incentive effect, and equity compensation and perks have an incentive effect when they are in the suitable range. Based on the results, we proposed policy recommendations from three aspects: monetary compensation, equity compensation, and perks. This study complements the research content on the executive compensation system in media enterprises’ transformation and upgrading. It can provide a reference for setting the administrative compensation system for media companies in China and other emerging economies.

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“…Although acquisitions are risky, they can also create value (Alexandridis et al., 2017; Hillier et al., 2020); firms can obtain resources and enter new markets through acquisitions (Berger et al., 2004). Therefore, some firms at risk of receiving a credit rating downgrade continue to pursue acquisitions; however, they may be more cautious when conducting acquisitions.…”

Section: Literature Review and Hypothesis Developmentmentioning

confidence: 99%

Credit rating downgrade risk and acquisition decisions

Kang

2021

Business Fin & Account

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This study examines the impact of credit rating downgrade risk on acquisition decisions. I find that firms at risk of a rating downgrade conduct fewer acquisitions. This result is robust to different measures of downgrade risk, instrumental variable analyses and matched sample tests. The correlation between downgrade risk and acquisitionpropensity is likely driven by the concern that risks associated with acquisitions lead to downgrades as evidenced by the more cautious approach of acquirers facing downgrade risk. These firms take more time to complete deals, hire more and higher-quality financial advisors, issue less debt to finance merger consideration, adopt target termination fee clauses and select targets with lower information asymmetry and higher ratings. This more cautious approach is associated with better long-term post-merger performance and reduced future-downgrade risk. Subgroup analyses reveal credit rating downgrade risk is negatively associated with acquisition decisions and positively associated with performance for investment-grade firms, especially BBB-firms, which are on the brink of being downgraded to non-investment grade. Such associations are not significant for non-investment-grade firms. Overall, the results suggest that firms at risk of a rating downgrade conduct acquisitions more cautiously, leading to fewer but more value-creating deals.

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Value creation around merger waves: The role of managerial compensation

Cited by 14 publications

References 88 publications

Risk‐Taking Incentives and Earnings Management: New Evidence*

Risk‐Taking Incentives and Earnings Management: New Evidence*

The incentive role of media companies’ executive compensation system in transformation and upgrading: Evidence from listed media companies in China

Credit rating downgrade risk and acquisition decisions

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