M&A and Big CEOPpaydays: The Effects of the 2006 SEC Compensation Disclosure Regulation

• In Event: Executive Compensation and Investment Activities

Abstract

The SEC amended compensation disclosure rules in 2006, requiring enhanced disclosure on why and how firms compensate their executives. In this study, we investigate how this enhanced compensation disclosure requirement affects CEO compensation for firms engaging in large acquisitions. Prior research documents that acquiring CEOs receive large bonuses and enjoy increased compensation after completing mergers and acquisitions even with poor post-deal performance (Grinstein and Hribar 2004; Harford and Li 2007). Using a sample of firms making large acquisitions during the period 2000-2012, we find that acquiring CEOs no longer receive large bonuses after completing an acquisition and acquiring CEOs’ pay becomes more sensitive to poor performance after the regulation became effective. Furthermore, we show that after 2006 these effects are more pronounced for acquiring firms with higher quality compensation disclosure. Collectively, our results indicate that enhanced compensation disclosure helps reduce opportunistic compensation practices.

Authors

• Isabel Wang, Michigan State University

• Xue Wang, The Ohio State University

• Daniel D Wangerin, Michigan State University