The deregulation of the banking industry during the 1990s provides a natural (public policy) experiment for investigating how firms adjust their executive compensation contracts as the environment in which they operate becomes relatively more competitive. Using the Riegle-Neal Act of 1994 as a...

By investigating the extent to which target directors bargain in their own interests during negotiations between merging banks, we document a strong inverse relation between merger premium and target director retention. This relation holds for both executive (inside) directors and independent...