Regulatory focus theory proposes that decision-making and goal pursuit occur via either a promotion focus (a sensitivity to gains and a desire for advancement and growth) or a prevention focus (a sensitivity to losses and a desire for stability and security). Recent theorizing in strategic management research suggests that there may be important firm-level outcomes influenced by the regulatory focus of top executives. We expand research on regulatory focus theory by testing whether or not CEO regulatory focus impacts the proclivity of firms to undertake acquisitions. Furthermore, regulatory focus theory suggests that the effects of people's promotion and prevention foci are magnified when their regulatory focus is congruent with salient situational characteristics, a phenomenon known as regulatory fit. As a test of this idea, we demonstrate how the effects of CEO promotion and prevention foci are differentially impacted by one such characteristic, namely incentive compensation. Our findings indicate that CEO regulatory focus impacts both the quantity and scale of acquisitions undertaken by a firm. We also find support for our arguments that these relationships are moderated by stock option pay.

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In this study, we develop and test a theory of CEO relative pay standing. Specifically, we propose that CEOs with negative relative pay standing status (underpaid relative to comparison CEOs) will engage in acquisition activity, as a self‐interested means of attempting to realign their pay with that of their peers. We further propose that, when CEOs with negative relative pay standing acquire, they will tend to finance those acquisitions more heavily with stock than cash, to mitigate the risk associated with those deals. Finally, we argue that acquisition activity will partially mediate the influence of CEO negative relative pay standing on subsequent CEO compensation increases; however, that pay growth will come primarily in the form of long‐term incentive pay. Our results support our predictions. Copyright © 2014 John Wiley & Sons, Ltd.

Research summary: A fundamental question in stakeholder strategy research is why firms adopt certain strategies or approaches to engage with key stakeholders. Recent research suggests that CEOs' characteristics can influence their general decisions to engage