Goodwill Impairment Losses and CEO Compensation

摘要

Corporate acquisitions are arguably one of the most important and biggest decisions CEOs have to make; yet many acquisitions do not create value for shareholders. We examine whether CEO compensation is reduced when the fair values of the acquired business units are written down (i.e., goodwill impairment losses are recognized). We find that there is a significant reduction in cash- and option-based CEO compensation as firms recognize goodwill impairment losses. In particular, we find that the decrease in CEO option-based compensation is driven by firms that are not R&D intensive, while the decrease in CEO cash compensation is driven by firms that acquired larger targets in the recent past and have CEOs with a shorter tenure. Our results suggest that compensation committees make CEOs pay a price for non-value maximizing acquisitions and discourage them from further undertaking risky investments especially by reducing the risk-inducing component of their compensation packages.