Equity-based compensation and performance of acquisitions

We investigate how the equity-based compensation (EBC) of top executives affects the performance of acquisitions. In contrast to the results of Datta et al. (2001), we find that high EBC acquirers pay higher premiums for targets than that of low EBC acquirers. The cumulative abnormal return around the acquisition announcement is lower for acquiring firms with high EBC. However, we find that the long-run performance of acquiring firms is positively correlated with EBC. Our results suggest that high EBC acquirers experience lower sensitivity to size and momentum factors that unexpectedly lowers the cost of equity, leading to higher returns.