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Performance pay, CEO dismissal, and the dual role of takeovers

Burkart, Mike ORCID: 0000-0002-0954-4499 and Raff, Konrad (2015) Performance pay, CEO dismissal, and the dual role of takeovers. Review of Finance, 19 (4). pp. 1383-1414. ISSN 1572-3097

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Identification Number: 10.1093/rof/rfu034


We propose that an active takeover market provides incentives by offering acquisition opportunities to successful managers. This allows firms to reduce performance-based compensation and can rationalize loss-making acquisitions. When choosing its acquisition policy and the quality of its board, each firm ignores the adverse effect on other firms’ acquisition opportunities and takeover threat. As a result, the takeover market is not sufficiently liquid and too few takeovers occur. Furthermore, liquidity in the takeover and managerial labor markets are inversely related. When poaching managers becomes more profitable, firms invest more in board quality which in turn reduces the incidence of takeovers.

Item Type: Article
Official URL:
Additional Information: © 2014 The Author
Divisions: Finance
Subjects: H Social Sciences > HG Finance
JEL classification: G - Financial Economics > G3 - Corporate Finance and Governance > G34 - Mergers; Acquisitions; Restructuring; Corporate Governance
Date Deposited: 22 Feb 2017 09:44
Last Modified: 20 Sep 2021 03:51

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