Titulo: “Hedge Fund Activism and CEO Compensation

Autores: Jana Fidrmuc

Abstract:
Applying a difference-in-differences approach, we document the effect of hedge fund activism on the corporate governance of target firms via the specific channel of CEO compensation. We hand-collect data on managerial pay, for a sample of 244 U.S. publicly-listed firms that were targets of activist hedge funds from 2009 to 2011, and their corresponding 244 industry, size and book-to-market matched firms. We find that target CEOs receive higher stock and total compensation, as compared to their peers, prior to an activist's entry. The entry of hedge fund activists results in a decline in target CEO pay, to levels prevalent at matched firms. This decrease is not because target CEOs were extracting rents before activism, since CEO pay at target firms, prior to activism, was indeed sensitive to firm performance. Instead, we show that the entry of hedge fund activists results in a decline in not just the level, but also the pay-for-performance sensitivity of CEO stock awards and total pay at target firms. These findings indicate that incentive compensation and monitoring by activist hedge funds, act as substitutes in motivating CEOs to improve firm value.

Fecha y hora: 17 de Noviembre de 2017 | 13:00 hrs
Lugar: Sala P307 Edificio Placa (Diagonal Paraguay # 257, Santiago, Chile)

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