Golden Parachutes, Takeovers and Shareholder Wealth

Abstract

financial economists and the general public. Despite this interest, results have been inconclusive and most studies use an outdated data set. I extend past work on the topic by using a more recent sample of 308 mergers and acquisitions from 2008-2014. Through a series of Tobit, Logit and OLS regressions, I find that while GP contracts increase the likelihood of a deal being successful, they do not affect the takeover premium that is paid on the target firm’s common stock. Furthermore, I find that GP incidence and importance are inversely related to the percentage of common stock that is owned by the CEO. These results provide strong support for the Incentive Alignment Hypothesis and suggest that GPs have a positive effect on shareholder wealth, as they increase the probability of a deal being successful and better align the interests of managers and shareholders.