Monday, June 18, 2007

CEOs' worth increases even when poor acquisitions are made

CEOs' worth increases even when poor acquisitions are made:
"Following an acquisition of another company, chief executive officers' compensation levels usually increase, even when the purchase turns out to be unprofitable, according to researchers at the University of Washington and University of British Columbia. That's because while a bad merger can decrease the value of a company's stock and options, CEOs typically acquire new stock options once the deal goes through, thus making up for any financial losses suffered as a result of the buy.

'There are major personal financial gains to be made by CEOs after any merger or acquisition so even if it ends up being a financial loss, shareholders suffer but CEOs nearly always come out ahead financially,' says Jarrad Harford, an associate professor of finance and business economics at the UW Business School and co-author of the study."
The paper, which is in the Journal of Finance, is of course very good. I read it a few years ago in working paper format--her is a copy of the paper.

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