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CEO pay slice and acquisitions in Australia: the role of tournament incentives

Hoa Luong (Accountancy and Finance, University of Otago, Dunedin, New Zealand)
Abeyratna Gunasekarage (Banking and Finance, Monash University, Melbourne, Australia)
Syed Shams (Finance, University of Southern Queensland, Toowoomba, Australia)

International Journal of Managerial Finance

ISSN: 1743-9132

Article publication date: 7 September 2021

Issue publication date: 26 September 2022




This paper investigates the influence of tournament incentives, measured by Chief Executive Officer (CEO) pay slice (CPS), on the acquisition decisions of Australian firms.


This study applies ordinary least squares regression analyses to a sample of 1,429 acquisition observations announced by 986 unique Australian firms spanning the 2001–2015 period. Event study methodology was employed to capture the market reaction to acquisition announcements. Multinomial logit models, a two-stage least squares instrumental variable (IV) approach and propensity score matching (PSM) technique were performed for robustness and endogeneity correction purposes.


The results suggest that CPS has a positive and significant relationship with the announcement period abnormal return realised by acquirers, implying that executives are motivated to exert best efforts and support the CEO in making value-creating acquisitions. Further analyses reveal that management teams of high CPS firms demonstrate efficiencies in executing acquisitions. The positive relationship between the CPS and abnormal return is more pronounced in acquisitions of private targets, domestic targets and bidders with high-quality CEOs. These acquisitions make a significant contribution to the long-run performance of the firm, which provides support for the effort inducement hypothesis.

Practical implications

The study's empirical evidence implies that the strong governance environment in Australia and a highly monitored acquisition market and compensation contracts motivates executives to exert their efforts to make value-enhancing acquisitions.


This paper appears to be the first investigation that makes a link between CPS in different components (i.e. short-term, long-term and total pay) as proxy for tournament incentives and the outcomes of both public and non-public acquisitions in the Australian setting.



The authors would like to thank the anonymous reviewer, Professor Alfred Yawson (the Editor) and the participants of AFAANZ 2020 conference for their helpful comments.


Luong, H., Gunasekarage, A. and Shams, S. (2022), "CEO pay slice and acquisitions in Australia: the role of tournament incentives", International Journal of Managerial Finance, Vol. 18 No. 5, pp. 833-868.



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