Professional Documents
Culture Documents
RESEARCH SPOTLIGHT
KEY CONCEPTS
Golden parachute: Compensation paid upon a change in control.
Potential benefits:
Provides insurance to CEO.
Encourages the sale of a company.
Discourages entrenchment.
Potential drawbacks:
Not tied to performance.
Not tied to takeover premium.
Transfers wealth to CEO.
CONCLUSION
Golden parachutes generally encourage deal activity.
Shareholders react positively to their adoption.
It is not clear whether golden parachutes provide managers incentive to
maximize the premium received in a deal (the evidence is mixed).
The board of directors should evaluate the size and structure of change-incontrol provisions within the broader context of managerial compensation
and incentives.
BIBLIOGRAPHY
Richard A. Lambert and David F. Larcker. Golden Parachutes, Executive Decision Making, and Shareholder Wealth. 1985. Journal Of
Accounting And Economics.
Judith C. Machlin, Hyuk Choe, and James A. Miles. The Effects of Golden Parachutes on Takeover Activity. 1993. Journal of Law and
Economics.
Craig E. Lefanowicz, John R. Robinson, and Reed Smith. Golden Parachutes and Managerial Incentives in Corporate Acquisitions:
Evidence from the 1980s and 1990s. 2000. Journal of Corporate Finance.
Eliezer M. Fich, Anh L. Tran, and Ralph A. Walkling. On the Importance of Golden Parachutes. 2013. Journal of Financial and
Quantitative Analysis.
Lucian Bebchuk, Alma Cohen, Charles C.Y. Wang. Golden Parachutes and the Wealth of Shareholders. 2014. Journal of Corporate
Finance.
Eliezer M. Fich, Jie Cai, and Anh L. Tran. Stock Option Grants to Target CEOs During Private Merger Negotiations. 2011. Journal of
Financial Economics.