Equity Grants to Target CEOs During Deal Negotiations

Abstract

I investigate the determinants and consequences of granting equity to the target’s CEO during deal negotiations. These negotiation grants likely reflect information about the acquisition, benefit from the deal premium, and provide more timely bargaining incentives. I find that CEOs are more likely to receive equity during negotiations when they negotiate for the target, particularly when the target has more bargaining power. This suggests that boards use equity to enhance bargaining incentives for CEOs with the most influence over deal price. I find limited evidence that negotiation grants are used as compensation and no evidence that they have a material adverse effect on shareholders.

Keywords: Mergers, Acquisitions, Agency, Negotiation, Compensation, Governance

JEL Classification: G34, J33, K22, M52