The Impacts Of Acquisitions On CEO Compensation And CEO Turnover Of Listed Family Firms

A large number of empirical studies on acquisitions conclude that acquisitions are value-destroying to acquiring firms,while acquiring CEOs experience large increases in compensation following acquisitions regardless whether acquisitions create value or not,and the benefits are not offset by higher risk of being replaced.These finding are consistent with the agency theory that managers undertake value-destroying,empire building acquisitions to extract personal benefits and entrench themselves by reducing the turnover rate.Studies on family business maintain that the concentrated ownership,the family controlling shareholder's long-run presence,along with the aim of building to last and intergenerational transition,motivate capable family controlling shareholder to monitor the management efficiently,and mitigate the principal-agent problem that arise from the separation of ownership and control.In the context of acquisitions,this paper examines the impacts of acquisitions on CEO compensation and CEO turnover.By investigating whether there is a significant difference in impacts of acquisitions on CEO payments and CEO turnover between family and non-family firms,this paper aims to address the efficacy of family controlling shareholder in monitoring the CEO payments and CEO turnover decisions following acquisitions.Using a sample of 934 acquisitions made by Chinese listed firms during 2007 to 2015,this paper concludes that:(1)family bidders earn significantly higher cumulative abnormal announcement return and better post-acquisition performance than non-family bidders;(2)There is a significant positive relation between acquisition and CEO payments;moreover,both the CEO of family and non-family firms experience significant increases in compensation;(3)There is no significant relation between acquisition and CEO turnover in family firms,while the turnover rate for CEO of non-family firms significantly decreases following acquisitions.The CEO of non-family firms experience large increase in compensation and decrease in turnover rate following acquisitions,which is consistent with the theoretical hypothesis that the CEO of non-family firms undertake empire building acquisitions to extract personal benefits and entrench themselves by reducing the turnover rate.However,the presence of family controlling shareholder's monitoring prevent the CEO of family firm from undertaking entrenched acquisitions to reduce the turnover rate.