In this paper, we use the introduction of the Sarbanes-Oxley Act in 2002 to assess the impact of executive option and stock grants on corporate acquisition decisions. Amongst its many innovations, the Sarbanes-Oxley Act (SOX) has limited the value and effect of equity-related compensation. We find strong evidence of a shift in the factors driving acquisitions post-SOX. Specifically, while bid premiums have fell irrespectively of the type of acquirer, highly incentivised managers have become more risk-averse after the passage of the Act. Investors also appear to have recognised the effect of a change in equity-related pay. Both market response to acquisition announcements and post-acquisition performance have been improved after the introduction of SOX but these cannot be attributed to firms that grant high levels of incentive compensation to their managers. Our results are robust to a number of explanatory factors and confounding events in the post-SOX period.
|Publication status||Published - 22 May 2014|
|Event||European Accounting Association Annual Congress - Tallinn, United Kingdom|
Duration: 21 May 2014 → 23 May 2014
|Conference||European Accounting Association Annual Congress|
|Period||21/05/14 → 23/05/14|
- Sarbanes-Oxley Act
- stock grants