Ownership structure and golden parachutes: Evidence of credible commitment or incentive alignment?

Small, Kenneth; Smith, Jeff; Yildirim, H. Semih

doi:10.1007/bf02885726

Cited by 7 publications

(4 citation statements)

References 19 publications

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“…In such cases, management would be sending a clear signal to investors of its intention to increase shareholder wealth, thus reducing the agency conflict. These results would be consistent with the Incentive Alignment hypothesis set forth by Knoeber (1986) and Jensen (1988) and then supported by the studies of Small et al (2007) and Chakraborty et al (2008). The Incentive Alignment hypothesis indicates that golden parachutes align the interests of managers and shareholders by providing managers with protection in the case of a change in the control of the firms and thus, ensuring that managers will negotiate the best deal in favor of shareholders.…”

Section: Introductionsupporting

confidence: 86%

Golden parachutes, managerial incentives and shareholders' wealth

Brusa

Lee²,

Shook³

2009

Managerial Finance

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If you would like to write for this, or any other Emerald publication, then please use our Emerald for Authors service information about how to choose which publication to write for and submission guidelines are available for all. Please visit www.emeraldinsight.com/authors for more information. About Emerald www.emeraldinsight.comEmerald is a global publisher linking research and practice to the benefit of society. The company manages a portfolio of more than 290 journals and over 2,350 books and book series volumes, as well as providing an extensive range of online products and additional customer resources and services.Emerald is both COUNTER 4 and TRANSFER compliant. The organization is a partner of the Committee on Publication Ethics (COPE) and also works with Portico and the LOCKSS initiative for digital archive preservation. AbstractPurpose -The purpose of this paper is to examine the effects of golden parachutes on shareholders' wealth when the measure is used as a compensation device instead of a takeover defense. The results show that the adoption of the measure has a negative influence on shareholders' wealth. These negative results are more prevalent for firms with an operating performance above their industry peers and are significantly influenced by the previous performance of the firm and the size of the golden parachute. Design/methodology/approach -Event study and regression analysis. Findings -The results show that the adoption of the measure has a negative influence on shareholders' wealth. These negative results are more prevalent for firms with an operating performance above their industry peers and are significantly influenced by the previous performance of the firm and the size of the golden parachute. Practical implications -Investors will have more information about the reaction of stock markets at the announcement of golden parachutes. Originality/value -The paper presents a new evaluation of the adoption of golden parachutes on shareholders' wealth when the measure is used as a compensation device instead of a takeover defense.

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Section: Introductionsupporting

confidence: 86%

Golden parachutes, managerial incentives and shareholders' wealth

Brusa

Lee²,

Shook³

2009

Managerial Finance

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“…Drawing on the contractual view, Lambrecht and Myers (2007) show that parachutes ensure efficient closure decisions. Borokhovich, Brunarski, and Parrino (1997), Small, Smith, and Yildirim (2007), and Rau and Xu (2010) find that parachutes support efficient contracting. Bates et al (2008) reports that such pay increases the likelihood of receiving a takeover bid.…”

Section: Introductionmentioning

confidence: 95%

Do parachutes discipline managers? An analysis of takeover battles

Fabel

Kolmar

2012

International Review of Law and Economics

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“…In a market like that of the US, where a company's ownership is dispersed, the agency problem mainly focuses on conflict between shareholders and managers. From this perspective, some researchers have argued that GPs have a positive effect (Berkovitch & Khanna, 1991;Harris, 1990;Lambert & Larcker, 1985;Small et al, 2007). However, a substantial body of work supports the view that GPs have a negative effect (Cochran et al, 1985;Singh & Harianto, 1989;Wade et al, 1990).…”

Section: Introductionmentioning

confidence: 99%

The Motivation and Consequences of Golden Parachute Provisions: A Case Study of TBEA Co., Ltd.

Huo

Zhang

Huang

2021

China Journal of Accounting Studies

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The paper examines the motivation and consequences of Golden Parachute (GP) contracts in the context of TBEA, a Chinese company whose GP payment was 1,000 times executive annual salary and which rescinded its GP provision in 2019. We find that for TBEA, whose ownership is dispersed, anti-takeover was the main motivation for the adoption of GPs, and that managerial power was the key factor in designing GPs with payment of high monetary value. We also find that such GPs may induce higher excess executive compensation, lower shareholder participation, and reduce firm value, and that market reaction to the rescinding of GPs is positive. These results show that emerging capital markets should beware of the negative effect of GPs on firm value.

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Ownership structure and golden parachutes: Evidence of credible commitment or incentive alignment?

Cited by 7 publications

References 19 publications

Golden parachutes, managerial incentives and shareholders' wealth

Golden parachutes, managerial incentives and shareholders' wealth

Do parachutes discipline managers? An analysis of takeover battles

The Motivation and Consequences of Golden Parachute Provisions: A Case Study of TBEA Co., Ltd.

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