Skip to Main Content
HBS Home
  • About
  • Academic Programs
  • Alumni
  • Faculty & Research
  • Baker Library
  • Giving
  • Harvard Business Review
  • Initiatives
  • News
  • Recruit
  • Map / Directions
Faculty & Research
  • Faculty
  • Research
  • Featured Topics
  • Academic Units
  • …→
  • Harvard Business School→
  • Faculty & Research→
Publications
Publications
  • April 2014
  • Article
  • Journal of Corporate Finance

Golden Parachutes and the Wealth of Shareholders

By: Lucian A. Bebchuk, Alma Cohen and Charles C.Y. Wang
  • Format:Print
ShareBar

Abstract

Golden parachutes (GPs) have attracted substantial attention from investors and public officials for more than two decades. We find that GPs are associated with higher expected acquisition premiums and that this association is at least partly due to the effect of GPs on executive incentives. However, we also find that firms that adopt GPs experience negative abnormal stock returns both during and subsequent to the period surrounding their adoption. This finding raises the possibility that even though GPs facilitate some value-increasing acquisitions, they do have, on average, an overall negative effect on shareholder wealth; this effect could be due to GPs weakening the force of the market for control and thereby increasing managerial slack, and/or to GPs making it attractive for executives to go along with some value-decreasing acquisitions that do not serve shareholders' long-term interests. Our findings have significant implications for ongoing debates on GPs and suggest the need for additional work identifying the types of GPs that drive the identified correlation between GPs and reduced shareholder value.

Keywords

Golden Parachute; Acquisitions; Takeovers; Acquisition Takeover; Acquisition Likelihood; Acquisition Premiums; Agency Costs; Managerial Slack; Dodd-Frank; Executive Compensation; Acquisition; Corporate Governance; Business and Shareholder Relations

Citation

Bebchuk, Lucian A., Alma Cohen, and Charles C.Y. Wang. "Golden Parachutes and the Wealth of Shareholders." Journal of Corporate Finance 25 (April 2014): 140–154.
  • SSRN
  • Find it at Harvard
  • Read Now

About The Author

Charles C.Y. Wang

Accounting and Management
→More Publications

More from the Authors

    • August 10, 2022
    • Wall Street Journal

    The Virtues of Stock Buybacks

    By: Jesse M. Fried and Charles C.Y. Wang
    • Journal of Financial Economics

    How Much Should We Trust Staggered Difference-In-Differences Estimates?

    By: Andrew C. Baker, David F. Larcker and Charles C.Y. Wang
    • March 2022
    • Faculty Research

    Corporate Governance in Business Analysis and Valuation

    By: Charles C.Y. Wang
More from the Authors
  • The Virtues of Stock Buybacks By: Jesse M. Fried and Charles C.Y. Wang
  • How Much Should We Trust Staggered Difference-In-Differences Estimates? By: Andrew C. Baker, David F. Larcker and Charles C.Y. Wang
  • Corporate Governance in Business Analysis and Valuation By: Charles C.Y. Wang
ǁ
Campus Map
Harvard Business School
Soldiers Field
Boston, MA 02163
→Map & Directions
→More Contact Information
  • Make a Gift
  • Site Map
  • Jobs
  • Harvard University
  • Trademarks
  • Policies
  • Accessibility
  • Digital Accessibility
Copyright © President & Fellows of Harvard College