Golden parachutes, managerial incentives and shareholders' wealth

Purpose – 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.