Acquisition Premiums of Executive Compensation in China: a Matching View

More aggressive acquiring firms paid higher executive compensation than non or less aggressive acquiring firms. This paper applies the generalized propensity score (GPS) methodology to estimate the relationship between a firm’s acquisition and its executive compensation. Allowing for continuous treatment, that is, different levels of the firms’ acquisition activities, we apply the GPS method on a panel data set of Chinese Public Listed Companies (PLCs) and find that there is a causal effect of firms’ acquisition activities on executive compensation. However, there is a divergent interests between the board directors and executive managers which may bring serious agency problem in the acquisition decision. The self-selection effect plays a dominant role in the acquisition premiums of top 3 board directors, while the learning-by-acquiring effect on compensation is more prominent for executive managers than board directors. As the executive managers as a whole, can benefit more executive management positions as well as higher growth of executive compensation from aggressive acquisition than board directors and top 3 executive managers.