Growth-promoting Bonuses and Mergers and Acquisitions

Growth-promoting Bonuses and Mergers and Acquisitions

Tor-Erik Bakke, Mathias Kronlund, Hamed Mahmudi, Aazam Virani

Series number :

Serial Number: 

Date posted :

March 31 2023

Last revised :

September 04 2023
SSRN Share


  • Merger and Acquisitions • 
  • executive compensation • 
  • Annual Incentive Plans • 
  • Growth-promoting Bonuses

Approximately one-third of U.S. top executives receive bonuses explicitly tied to firm size measures like sales growth. We study how such "growth-promoting bonuses" influence firms' mergers and acquisitions (M&A) activities. We find that firms with such bonus structures are more prone to make acquisitions—especially acquisitions of a scale that help meet the bonus size target.

Such acquisitions result in lower announcement returns for acquiring firms and are more likely to destroy value. These lower returns can be attributed to the selection of targets with lower synergies and, to a lesser extent, higher premiums paid.


Real name:
Tor-Erik Bakke
Real name:
Mathias Kronlund
Real name:
Hamed Mahmudi
Real name:
Aazam Virani