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Do Managerial Incentives Affect Mergers and Acquisitions?

Date

2015-09-04

Journal Title

Journal ISSN

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Type

Degree Level

Masters

Abstract

This thesis investigates how CEO risk taking incentives related to compensation in the form of executive stock options affect the decision to engage in merger and acquisition (M&A) activities with particular attention to same-industry versus cross-industry acquisitions. Risk taking incentives increase the propensity of M&As, especially for same-industry M&As. Furthermore, risk taking incentives increase the likelihood of cash payment for both same and cross-industry acquisitions. We do not find a significant direct stock price response difference between same-industry and cross-industry acquiring firms. The market responds favorably when risk taking incentives are higher for both same-industry acquisitions and cross-industry takeovers. We further find that the acquiring firm’s post-acquisition cash flow volatility is also positively related to risk taking incentives for both same- and cross-industry M&As.

Description

Keywords

Managerial incentives, Risk-taking, Mergers and acquisitions, Cash flow volatility

Citation

Degree

Master of Science (M.Sc.)

Department

Edwards School of Business

Program

Finance

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DOI

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