EXECUTIVE CAREERS AND COMPENSATION SURROUNDING TAKEOVER BIDS

This article examines the impact of a takeover bid on the careers and compensation of chief executives of target firms. We find that acquisi tion attempts occur more frequently in industries where chief executiv e officers (CEO) have positive abnormal compensation. Target CEOs are more likely to be replaced when a bid succeeds, than when it fails. CE Os of target firms who lose their jobs generally fail to find another senior executive position in any public corporation within three years after the bid. Consistent with Fama's (1980) notion of ''ex post sett ling up'', postbid compensation changes of managers retained after an acquisition attempt are negatively related to several measures of thei r prebid abnormal compensation. This result is robust to a variety of specifications and does not seem to be caused by mean reversion or sel ection bias. These findings are consistent with the hypothesis that a takeover bid generates additional information that is used by labor ma rkets to discipline managers.