Corporate Governance, Bank Mergers and Executive Compensation

37 Pages Posted: 3 Dec 2014

See all articles by Yan Liu

Yan Liu

University of Reading - ICMA Centre

Carol Padgett

ICMA Centre, Henley Business School, Univeristy of Reading

Simone Varotto

ICMA Centre - Henley Business School, University of Reading

Date Written: December 1, 2014

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

JEL Classification: G21, G28, G34

Suggested Citation

Liu, Yan and Padgett, Carol and Varotto, Simone, Corporate Governance, Bank Mergers and Executive Compensation (December 1, 2014). Available at SSRN: https://ssrn.com/abstract=2532398 or http://dx.doi.org/10.2139/ssrn.2532398

Yan Liu

University of Reading - ICMA Centre ( email )

Whiteknights Park
P.O. Box 242
Reading RG6 6BA
United Kingdom

Carol Padgett

ICMA Centre, Henley Business School, Univeristy of Reading ( email )

Whiteknights
P.O. Box 242
Reading, RG6 6BA
United Kingdom

Simone Varotto (Contact Author)

ICMA Centre - Henley Business School, University of Reading ( email )

Whiteknights Park
P.O. Box 242
Reading RG6 6BA
United Kingdom

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