By examining how executive compensation structure determines corporate acquisition decisions, we document a strong positive relation between acquiring managers' equity-based compensation~EBC! and stock price performance around and following acquisition announcements. This relation is highly robust when we control for acquisition mode~mergers!, means of payment, managerial ownership, and previous option grants. Compared to low EBC managers, high EBC managers pay lower acquisition premiums, acquire targets with higher growth opportunities, and make acquisitions engendering larger increases in firm risk. EBC significantly explains postacquisition stock price performance even after controlling for acquisition mode, means of payment, and "glamour" versus "value" acquirers. CORPORATE INVESTMENT DECISIONS ARE IMPORTANT to the creation of shareholder wealth. Whereas most investments are small relative to the size of the firm, mergers and acquisitions are major, externally observable, and discretionary long-term investments. 1 These transactions also present managers with opportunities that can exacerbate the potential for conf licts of interest between managers and shareholders. Thus, corporate acquisitions present an ideal setting to explore the relation between managerial incentives and the efficiency of managerial investment decisions.Executive compensation contracts can be used to effectively align managerial interests with those of shareholders, and financial economists have recognized the potential inf luence of managerial compensation on corporate takeover decisions. In a discussion of important unresolved research issues, Jensen and Ruback~1983! specifically inquire how the compensation of acquiring managers relates to the stock price effects of acquisition outcomes. Shleifer and Vishny~1988, p. 19! conjecture that equity-based executive compensation "should have the effect of reducing the non-value-maximizing behavior of @acquiring# managers." * Datta and Raman are at the Department of Finance, McCallum Graduate School of Business, Bentley College. Iskandar-Datta is from the Department of Finance, Sawyer School of Management, Suffolk University. Datta acknowledges partial support from Robert and Julia Dorn Professorship. We thank Ajai Singh for his comments on an earlier version of the paper. We are especially grateful to Rick Green~the editor! and an anonymous referee for their valuable suggestions. The usual disclaimer applies.

We examine the determinants and consequences of earnings management by firms in the context of their relationships with suppliers and customers. We find that industry-level proxies for relationship-specific investments by suppliers/customers are positively associated with the magnitude of discretionary accruals, volatility of earnings, and the frequency of large earnings increases. We also find that firm-level proxies for the intensity of relationship-specific investments by actual suppliers are positively related to the magnitude of discretionary accruals. In addition, earnings management by the firm in one period is positively related to the magnitude of R&D investments by suppliers and customers in the next period. However, we find that earnings management adversely affects the duration of customer-supplier relationships. Overall, our findings suggest that earnings management is used opportunistically to influence the perception of suppliers/customers about the firm’s prospects.

This study documents that managerial stock ownership plays an important role in determining corporate debt maturity. Controlling for previously identified determinants of debt maturity and modeling leverage and debt maturity as jointly endogenous, we document a significant and robust inverse relation between managerial stock ownership and corporate debt maturity. We also show that managerial stock ownership influences the relation between credit quality and debt maturity and between growth opportunities and debt maturity. Copyright 2005 by The American Finance Association.

This study documents that managerial stock ownership plays an important role in determining corporate debt maturity. Controlling for previously identified determinants of debt maturity and modeling leverage and debt maturity as jointly endogenous, we document a significant and robust inverse relation between managerial stock ownership and corporate debt maturity. We also show that managerial stock ownership inf luences the relation between credit quality and debt maturity and between growth opportunities and debt maturity.

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