An International Meeting of the American Accounting Association American Accounting Association 2006 Annual Meeting August 6–9, 2006 Washington, D.C.

Nina T. Dorata
State University of New York College at Old Westbury

Abstract: This study examines the transactional context of mergers and acquisitions in which goodwill, other asset impairments, and restructuring charges occur, and finds evidence that compensation committees will adjust earnings-based compensation for the decision outcomes of merger and acquisition transactions. I find that CEO cash compensation is increased when restructuring charges are recorded by an Acquiring firm with respect to the acquired Target firm. The results suggest that compensation committees will increase CEO compensation to encourage restructuring activities following an acquisition. Contrary to expectations, goodwill impairments also increase with CEO compensation suggesting that CEO cash compensation is not penalized by such charges. However, the compensation of non-interlocked CEOs stands to benefit more than the compensation of CEOs who are interlocked.

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