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Corporate governance, bank mergers and executive compensation

Liu, Y., Padgett, C. and Varotto, S. (2017) Corporate governance, bank mergers and executive compensation. International Journal of Finance & Economics, 22 (1). pp. 12-29. ISSN 1099-1158

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To link to this item DOI: 10.1002/ijfe.1565

Abstract/Summary

Using a sample of US bank mergers from 1995 to 2012, we observe that the pre-post merger changes in CEO bonus are significantly negatively related to the strength of corporate governance within the bidding bank. This suggests that bonus compensation is not consistent with the “optimal contracting hypothesis”. Salary changes, on the other hand, are not affected by corporate governance which is in line with “optimal contracting”. We also find that good governance is associated with more accretive deals for the bidder. Overall, our results are consistent with the notion that, unlike salary and long-term compensation, bonus compensation is not aligned with value creation and is more vulnerable to CEO manipulation in banks with poor corporate governance.

Item Type:Article
Refereed:Yes
Divisions:Henley Business School > ICMA Centre
ID Code:66907
Uncontrolled Keywords:Corporate Governance, Bank Mergers, Executive Compensation, Bonus
Publisher:Wiley-Blackwell

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