We empirically examine the impact of incentive compensation on the riskiness of acquisition decisions before and after the passage of Sarbanes-Oxley Act (SOX). Controlling for confounding events, firm characteristics and industry fixed effects, we find a substantial change in the relation between equity-related compensation and acquisition risk post-SOX stemming from a previously unidentified shift in the effectiveness of executive stock options to control managerial risk aversion. Not only has incentive compensation failed to offset the adverse impact of SOX on risk-taking activity but it has also significantly altered managerial incentives. The decrease in acquisition risk post-SOX cannot be solely attributed to changes in the structure of executive compensation but it additionally stems from the way managers perceive compensation-based incentives in the new regulatory environment. The results are robust to different measures of acquisition risk and alternative definitions of incentive compensation.
|Number of pages||43|
|Publication status||Published - 18 Oct 2014|
|Event||Financial Management Association Annual Meeting 2014 - Gaylord Opryland Resort & Convention Center , Nashville, Tennessee, United States|
Duration: 15 Oct 2014 → 18 Oct 2014
|Conference||Financial Management Association Annual Meeting 2014|
|Period||15/10/14 → 18/10/14|
- Sarbanes-Oxley Act
- equity-related compensation
- corporate acquisition
McColgan, P., Hillier, D., & Tsekeris, A. (2014). Incentive compensation vs. SOX: evidence from corporate acquisition decisions. Paper presented at Financial Management Association Annual Meeting 2014, Nashville, Tennessee, United States.