Author(s): Rym Ayadi, Francesca Arnaboldi
In: Financial Markets, Researchers’ work published externally, CEPS Research Areas
Date: 01 October 2008
In this paper, we investigate whether changes in executive compensation related to the agency problems is a significant explanatory factor of the changes in banking performance before and after a merger or an acquisition. To assess banking performance, first we measure profitability and efficiency (cost and profit) for the acquirers and the targets before and after the operation using financial ratios and Data Envelopment Analysis (DEA). Financial ratios and balance sheet indicators are taken from Bankscope. Second, we relate the changes in pre and post M&A performance with executive compensation and other indicators. The aim is to understand if the level of executive compensation before the deal influences the performance of banks (Masulis, Wang, Xie, 2007). The executive compensation data, collected from banksí annual reports, includes fixed and variable compensation, such as stock option plans, CEO tenure measured in number of years CEO has been in charge and CEO role after the deal.