07/03/2011
Shareholder interests penalised by golden parachutes
p { margin-bottom: 0.08in; } In corporate acquisitions, directors who expect to receive generous packages on departure, known famously as “golden parachutes,” are prepared to sell their businesses at a lower price, which costs shareholders millions of dollars, according to a study by the Cass Business School in London and LeBow College of Business in Philadelphia. The study, led by Dr. Anh Tran at Cass Business School (City University, London) and professors Eliezer Fich and Ralph Walking at LeBow College of Business (Drezel University, Philadelphia), takes into account more than 850 acquisitions announced in the United States between 1999 and 2007. The authors weighed the size of the golden parachute against all other indemnities the chairman and CEO stood to receive in case of merger, including potential loss of income. It also found that a 10% increase in the size of the parachute compared with other indemnities results in a 5% decrease in acquisition premiums above the market share price, which represents an average loss of USD249m for a typical acquisition.
