The External Fairness Of Executive Compensation And Goodwill From M&A Activities

M&A and restructuring play an important role in promoting industrial transformation and upgrading,and spawning new economic growth points.M&A activities of listed companies in China are becoming more and more frequent,but high-premium M&A cases also occur frequently.The huge amount of goodwill of M&A is likely to lay mines for enterprises and increase future business risks.M&A goodwill is formed by the company's M&A decisions,and senior executives are the main decision makers in M&A transactions,and the psychological characteristics and behavioral activities of senior management influence the confirmation of M&A goodwill.The huge amount of goodwill reflects the irrational factors in executive M&A decisions.Prospect theory points out that people will preset reference points,measure whether they are in a profit or loss state,and show different risk preferences in decision-making.Because of social characteristics,executives tend to compare with their peers' salaries.Will senior management's judgment on the external fairness of compensation change its risk appetite,which will affect M&A decisions and the recognition of M&A goodwill? To be tested empirically.Based on the perspective of prospect theory,the Shanghai and Shenzhen A-share listed companies with new goodwill in China from 2010 to 2018 were selected as the research sample to examine the relationship between the external fairness of executive compensation and the goodwill of M&A.The study found that the lower the external fairness of executive compensation,the greater the goodwill of M&A.In addition,the study found that executive risk appetite is the mechanism by which the external fairness of executive compensation affects newly added goodwill.The external unfairness of executive compensation increases the risk tolerance of executives.Further analysis found that for companies with small pay gaps within the executive team,weak executive incentives and low on-the-job consumption levels,the unfair external compensation of the executives has a greater impact on the newly added goodwill.The company's newly added goodwill and the third year goodwill impairment provision have a positive relationship,which will have a negative effect on the business performance of the next three years.The results of this paper complement the research on executive compensation fairness,corporate mergers and acquisitions,and provide empirical data for companies to optimize the design of executive compensation systems,supervise departments to guide M&A activities,and improve relevant regulatory policies.