Top Management Compensation Differences and Merger Outcomes

We find that differences in acquirer and target management compensation negatively affect merger outcomes. Larger differences in top management pay are associated with lower announcement returns to the acquirer and negative combined wealth effects. Larger pay differences also increase the probability of deal withdrawal, and lead to a greater likelihood of top management turnover. Overall, our results suggest that differences in executive compensation are indicators of integration problems at merging firms, which in turn negatively affect merger outcomes.