Abstract
AbstractTheory is conflicted on the impact of equity‐based compensation on managerial risk taking. We explore this issue by studying the relation between equity‐based compensation and firms' propensity to make acquisitions. Consistent with the notion that equity‐based compensation encourages managerial risk taking, we report a positive relation between equity‐based compensation and CEO acquisitiveness. Additionally, we find that the number of acquisitions, acquisition size, use of equity as payment, and propensity to acquire private firms are all positively associated with equity‐based compensation. Abnormal returns around acquisition announcements suggest that the impact of equity‐based compensation is not uniformly positive for acquiring‐firm shareholders.
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