Journal of Business Ethics

, Volume 77, Issue 2, pp 219–230

Boards of Directors’ Self Interest: Expanding for Pay in Corporate Acquisitions?

  • S. Trevis Certo
  • Catherine M. Dalton
  • Dan R. Dalton
  • Richard H. Lester
Article

DOI: 10.1007/s10551-006-9345-5

Cite this article as:
Certo, S.T., Dalton, C.M., Dalton, D.R. et al. J Bus Ethics (2008) 77: 219. doi:10.1007/s10551-006-9345-5

Abstract

Director compensation can potentially represent an ethical minefield. When faced with supporting strategic decisions that can lead to an increase in director pay, directors may consider their own interests and not solely those of the shareholders to whom they are legally bound to represent. In such cases, directors essentially become agents, rather than those installed to protect principals (shareholders) from agents. Using acquisitions as a study context, we employ a matched-pair design and find a statistically significant difference in outside director compensation between acquiring and control firms. Outside directors of acquiring firms earn more than twice as much as their counterparts in the matched-sample.

Keywords

acquisitions agency theory board of directors director compensation 

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Copyright information

© Springer Science+Business Media B.V. 2007

Authors and Affiliations

  • S. Trevis Certo
    • 1
  • Catherine M. Dalton
    • 2
  • Dan R. Dalton
    • 2
  • Richard H. Lester
    • 1
  1. 1.Mays Business SchoolTexas A&M UniversityCollege stationUSA
  2. 2.Kelley School of BusinessIndiana UniversityBloomingtonUSA

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