Golden parachutes and the wealth of shareholders

Lucian Bebchuk*, Alma Cohen, Charles C.Y. Wang

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review


Golden parachutes (GPs) have attracted substantial attention from investors and public officials for more than two decades. We find that GPs are associated with higher expected acquisition premiums and that this association is at least partly due to the effect of GPs on executive incentives. However, we also find that firms that adopt GPs experience negative abnormal stock returns both during and subsequent to the period surrounding their adoption. This finding raises the possibility that even though GPs facilitate some value-increasing acquisitions, they do have, on average, an overall negative effect on shareholder wealth; this effect could be due to GPs weakening the force of the market for control and thereby increasing managerial slack, and/or to GPs making it attractive for executives to go along with some value-decreasing acquisitions that do not serve shareholders' long-term interests. Our findings have significant implications for ongoing debates on GPs and suggest the need for additional work identifying the types of GPs that drive the identified correlation between GPs and reduced shareholder value.

Original languageEnglish
Pages (from-to)140-154
Number of pages15
JournalJournal of Corporate Finance
StatePublished - Apr 2014


  • Acquisition likelihood
  • Acquisition premiums
  • Acquisitions
  • Agency costs
  • Corporate governance
  • Dodd-Frank
  • Executive compensation
  • Golden parachute
  • Managerial slack
  • Takeovers


Dive into the research topics of 'Golden parachutes and the wealth of shareholders'. Together they form a unique fingerprint.

Cite this