The impact of post-acquisition activities on bid premium in the market for corporate acquisitions

This study attempts to gain an understanding of how asset write-offs, restructuring charges, sales of Target assets that occur in the post-acquisition periods, and post-acquisition CEO cash compensation are associated with the bid premium at acquisition announcement date. This study emphasizes that the bid premium decision is multifaceted and not only includes factors known at the announcement date such as accounting choice, and Target net operating loss carryforwards, but also anticipates the economic effects of events that occur in the aftermath.; The regression analysis finds that the CEO cash compensation in the post-acquisition periods is positively associated with bid premium. The association between post-acquisition activities and bid premium shows a negative association between goodwill write-offs and bid premium, and between restructuring charges and bid premium, but a positive association between bid premium and sales of Target assets.; I also examine whether the reporting of goodwill write-offs, other asset write-offs, restructuring charges, and sales of Target assets moderate the association between bid premium and compensation. The study confirms these findings in that when the CEO cash compensation in the post-acquisition periods is interacted with sales of Target assets a negative association is found. When there are no sales of Target assets in the post-acquisition periods, CEO compensation increases bid premium. The interaction between compensation and restructuring charges suggests that a positive association only holds in the presence of restructuring charges.; This study contributes to the merger and acquisition literature and documents that management not only considers deal characteristics known at announcement date, but also anticipates events years subsequent to the completion of the transaction in pricing decisions. The study also concludes that higher CEO compensation in years after an acquisition influences the pricing decision for acquisitions.