Executive Compensation and Corporate acquisitions in China

This paper examines 259 completed merger and acquisition (M&A) deals undertaken by Chinese firms listed on either the Shanghai or Shenzhen Stock Exchanges between 2003 and 2010. Using comprehensive financial and accounting data, augmented by unique data on executive compensation, we attempt to investigate how executive compensation relates to corporate acquisition decisions in acquiring firms in China. We find that the acquiring firms gain significantly positive abnormal returns around the announcement of M&As. We also find that the stock price of acquring firms following acquisition announcements statistically outperformace the average market in a three year period. On the other hand, we obseve that the salary in cash of top-three executives differentials greatly across the acquring firms. The overall level of managerial ownership in the acquiring firms is rather low. There are some observable patterns in the relations between the short-term CARs of the acquiring firms and the executive salary or ownership. while the level of executive ownership has no statistically significant influence on the CARs, executive salary is significantly negatively related to the CARs of the acquiring firms offering to their executives a high level of salary