Golden parachutes and the wealth of shareholders
By: Lucian Bebchuk, Alma Cohen and Charles C. Y. Wang
Contributors: Cohen, Alma; Wang, Charles C.Y.; John M. Olin Center for Law, Economics, and Business
Series: Discussion paper -- no. 683; Discussion paper (John M. Olin Center for Law, Economics, and Business : Online) -- no. 683.
Publisher: Harvard Law School
Published: 2010
Place of publication: Cambridge, MA
Language: eng
Format: [electronic resource] /
Subjects: Corporations; Golden parachutes (Executive compensation); Mathematical models; Consolidation and merger of corporations; Economic aspects; Valuation
Description: "Abstract: Golden parachutes have attracted much debate and substantial attention from investors and public officials for more than two decades, and the Dodd-Frank Act recently mandated a shareholder vote on any future adoption of a golden parachute by public firms.  We use IRRC data for the period 1990-2006 to provide a comprehensive analysis of the relationship that golden parachutes have both with the evolution of firm value over time and with shareholder opportunities to obtain acquisition premiums.  We find that golden parachutes are associated with increased likelihood of either receiving an acquisition offer or being acquired, a lower premium in the event of an acquisition, and higher (unconditional) expected acquisition premiums.  Tracking the evolution of firm value over time in firms adopting GPs, we find that firms adopting a GP have a lower industry-adjusted Tobin's Q already in the IRRC volume preceding the adoption, but that their value continues to decline during the inter-volume period of adoption and continues to erode subsequently.  A similar pattern is displayed by an analysis of abnormal stock returns prior to the adoption of GPs, during the inter-volume period of adoption, and subsequently"--John M. Olin Center for Law, Economics, and Business web site.
Notes: Title from PDF file as viewed on 12/16/2010.

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