Executive compensation and stock price reaction
: decoding the puzzle of shareholder value creation: insights from a decade of the top 100 U.S. M&A deals

  • Francisco Mota Gonçalves (Student)

Student thesis: Master's Thesis


The complexity of executive compensation structures and their potential effects on the market reaction to the announcement of Mergers and Acquisitions (M&A) transactions has been a subject of increasing interest for both practitioners and scholars in the realm of corporate finance. This research adds to the ongoing discourse by investigating the effects of different types of executive compensation - cash and equity-based - on short-term M&A outcomes, particularly the cumulative abnormal returns (CAR) around the announcement date. Utilizing a comprehensive dataset composed of the 100 largest M&A transactions of the past decade (2010-2020), we conducted detailed and robust regression analyses. The empirical findings of the study are both significant and revealing. There is a statistically significant negative correlation between cash-based compensation and CAR. This suggests that firms which compensate their executives heavily with cash are less likely to achieve value-enhancing M&A transactions, thereby experiencing lower or insignificant abnormal returns during the announcement period. On the other hand, our analysis revealed a positive relationship between equity-based compensation and CAR. This implies that when executives are rewarded with equity, a stake in the company, they may be more motivated to undertake M&A transactions that enhance firm value, thereby yielding more favorable short-term financial outcomes. However, it is important to acknowledge the limitations of this study. The focus was solely on the short-term impacts of M&A transactions, and we did not measure whether the deals were successful over the long term. Moreover, our dataset comprised only the 100 largest deals, which may over-represent certain types of firms or industries. Potential illegal insider trading could convey information to the market, prior to the formal M&A announcements, a factor could also influence CAR, that was not accounted for in the study (Ahern, 2017; Augustin et al., 2014).
Date of Award26 Oct 2023
Original languageEnglish
Awarding Institution
  • Universidade Católica Portuguesa
SupervisorPaulo Alves (Supervisor)


  • Executive compensation
  • Merges and acquisitons
  • Cumulative abnormal returns
  • Cash compensations
  • Equity-based compensation


  • Mestrado em Finanças

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