CEO Equity-Based Compensation and Goodwill Recognition Using the Purchase Price Allocation Setting

Document Type

Article

Publication Date

2017

Abstract

This study examines the relationship between CEO equity based compensation and the amount recognized as goodwill from mergers and acquisitions. CEO stock options grants and options exercised has been chosen to represent the different forms of equity based compensation. Also, the study investigates the effect of CEO characteristics such as gender, age and tenure on goodwill recognition. The researcher uses a sample of 108 public U.S business combinations completed in the service sector between 2002 and 2015. Results of the study indicates that there is no direct relationship between stock option grants and goodwill but CEOs with higher stock options grants in their compensation package recognize more goodwill only if the acquirer stock prices are high. Also, CEOs with higher options exercised in the acquisition announcement year, recognize more goodwill and this relationship becomes stronger when CEO has long tenure. Also, the researcher finds negative relationship between higher representation of CEO male and goodwill recognition

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