Corporate Governance, Bank Mergers and Executive Compensation

Yan Liu (), Carol Padgett and Simone Varotto ()
Additional contact information
Yan Liu: ICMA Centre, Henley Business School, University of Reading
Carol Padgett: ICMA Centre, Henley Business School, University of Reading

ICMA Centre Discussion Papers in Finance from Henley Business School, University of Reading

Abstract: 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 but are positively correlated with pre-post merger changes in the M/B ratio of the bidding banks, 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.

Keywords: corporate governance; bank mergers; executive compensation; bonus (search for similar items in EconPapers)
JEL-codes: G21 G28 G34 (search for similar items in EconPapers)
Date: 2014-12
New Economics Papers: this item is included in nep-ban, nep-cfn and nep-com
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.icmacentre.ac.uk/images/2015/01/ICM-2014-18-Liu-et-al.pdf (application/pdf)

Related works:
Journal Article: Corporate Governance, Bank Mergers and Executive Compensation (2017)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:rdg:icmadp:icma-dp2014-18

Access Statistics for this paper

More papers in ICMA Centre Discussion Papers in Finance from Henley Business School, University of Reading Contact information at EDIRC.
Bibliographic data for series maintained by Marie Pearson ().