The influence of CEOs’ characteristics (gender, tenure, duality) on the
relationship between equity-based CEO compensation and unrelated
cross-border M&As: Evidence from the United States
MSc Thesis International Business & Management University of Groningen
Faculty of Economics & Business
Merlin Alferink Student number: S3524256 m.m.alferink.1@student.rug.nl
Thesis supervisor: Dr. J. Shin Co-assessor: Dr. E. Mendiratta
Word count (excluding references and appendices): 14,790
The influence of CEOs’ characteristics (gender, tenure, duality) on the relationship between equity-based CEO compensation and unrelated cross-border M&As: Evidence
from the United States
ABSTRACT
By applying the upper echelons theory to the agency theory of incentives, this study examined the influences of CEOs’ characteristics on the relationship between equity-based CEO compensation and unrelated cross-border M&As. This study used a sample of 77 organizations in the Fortune 500 over the last six years. Literature stresses a positive relationship between equity-based compensation and unrelated cross-border M&As, as equity is used to encourage CEOs to engage in risky behavior. However, although this relationship seems solid, the upper echelons theory infers that the characteristics of the CEO can have a considerable influence on their strategic decisions. Studies show that differences in gender, position tenure, and duality largely reflect their level of risk-tolerance. These different cognitive bases of CEOs result in different behavior and strategic choices, making it difficult to make trustworthy predictions about what a CEO will do in complex situations, such as taking strategic risks. This thesis therefore hypothesized that these characteristics would weaken the relationship between equity-based CEO compensation and unrelated cross-border M&As. However, after running a Poisson regression with robust standard errors, we conclude that the hypotheses are not supported. The results show that equity-based CEO compensation has a negative influence on the number of unrelated cross-border M&As. Moreover, the influences of the individual-based characteristics (gender, position tenure, duality) on the relationship between equity-based CEO compensation and unrelated cross-border M&As are insignificant in this study.
ACKNOWLEDGEMENTS
TABLE OF CONTENT
INTRODUCTION ... 5
LITERATURE REVIEW AND HYPOTHESIS ... 8
Agency theory ... 8
Upper echelons theory ... 11
Gender ... 12
Position tenure ... 13
Duality ... 15
Conceptual model ... 17
METHODOLOGY ... 18
Sample and data collection ... 18
Dependent variable ... 19 Independent variable ... 20 Moderating variables ... 20 Control variables ... 20 Analytical technique ... 23 RESULTS ... 26 Descriptive statistics ... 26 Correlations ... 27
Results Poisson Regression ... 29
Robustness check ... 32
FINDINGS ... 34
Discussion ... 34
Theoretical contributions and managerial implications ... 40
Limitations and recommendations for future research ... 41
Conclusion ... 43
BIBLIOGRAPHY ... 44
APPENDICES ... 54
Appendix A ... 54
INTRODUCTION
Questions such as why CEOs make the strategic decisions that they make, and what role CEO compensation plays in the attendance of their risky behavior have gained widespread attention over the last decades (Finkelstein, Hambrick & Cannella, 2009; Jensen & Zajac, 2004). Especially since CEOs’ compensation has increased much faster compared to the pay of typical employees, from an average of $700,000 in 1970 to $13,3 million in 2017 (Mischel & Schieder, 2018). Jensen & Zajac (2004) suggest that the agency theory of incentives can be taken together with the upper echelons theory to investigate this matter. This thesis will answer that call by answering the following research question: “What is the influence of CEOs’ characteristics (gender, tenure, duality) on the relationship between equity-based compensation and unrelated cross-border M&As?”
The agency theory of incentives is an approach to explain why CEOs get so much compensation (Jensen & Meckling, 1976). This theory states that CEOs and shareholders have conflicting interests within the organization. Mainly due to opportunistic behavior of the CEOs (Jensen & Mecking, 1976), and differences in risk-tolerance (Deutsch, Keil & Laamanen, 2011) or time horizon of their visions (Matsumura & Shin, 2005). To align the interests of these two parties, CEOs’ compensation is often tied to the wealth of the shareholders (Bebchuk & Fried, 2005). In other words, the higher the organizational performance, the higher CEOs’ compensation. As a result, CEOs are willing to take more strategic risks to increase the organizational performance. To achieve a long-term alignment of interests, shareholders may decide to include equity in CEOs’ compensation (Hill, 2010). Equity includes stock options and restricted stock awards, which means CEOs obtain shares and therefore ownership in the organization (Ozkan, 2007). They might be willing to engage in more risky strategies, as they will be rewarded for upside share price movements but will not be punished if they decrease (Matsumura & Shin, 2005). In large US organizations, the equity-based component has already become a basic element in the compensation of CEOs (Murphy, 2013).
are still contradicting findings considering the impact of equity-based compensation on strategic risk-taking (Murphy, 2013; Baixauli-Solar, Belda-Ruiz & Sanchez-Marin, 2014; Haleblian, Devers, McNamara, Carpenter & Davison, 2009). This thesis tries to fill this gap and contribute to existing literature on these topics by focusing on a specific type of risky strategy, unrelated cross-border M&A. Cross-border M&As are characterized by uncertainty due to difficulties regarding different cultures, institutional environments, and organizational practices, which can hamper the achievement of strategic goals (Shimizu, Hitt, Vaidyanath & Pisano, 2004). In addition, unrelated cross-border M&As are characterized by even more risks due to a higher volatility level and information asymmetries (Herger & McCorriston, 2015). Nevertheless, high levels of risk are necessary to produce high levels of profits (Hull, 2015). M&As can be seen as an example of this relationship between risk and return, as they bring high levels of outcome uncertainty, but can also significantly increase share prices (Sanders, 2001).
Although the role of equity-based compensation in strategic risk-taking can positively influence unrelated cross-border M&As, the upper echelons theory infers that the individual characteristics of CEOs have a significant influence on these strategic decisions (Hambrick, 2007). It is difficult to make trustworthy predictions of what a CEO will do in a complex situation (Finkelstein et al., 2009) as CEOs might react differently to equity-based compensation (Sanders, 2001). Although the upper echelons theory infers these influences are important to consider, agency theorists often neglect these specific contexts related to decision-making processes (Amburgey & Miner, 1992). Therefore, this thesis includes three moderating variables reflecting CEO characteristics (gender, position tenure and duality), aiming to fill this gap and complement on previous scholars that studied the aforementioned topics.
compensation. In other words, equity-based compensation can be seen as a motivation for male CEOs to take more risks, but this mechanism might have other effects if the CEO is a female.
Furthermore, research on CEOs’ position tenure also shows contracting findings. Some scholars infer that advanced tenure leads to risk-tolerance as CEOs become more skilled and confident (Kor, 2006; Greve & Mitsuhashi, 2007; Orens & Reheul, 2013), and others suggest that it leads to risk-aversion due to fear of losing stability (Simsek, 2007; Farag & Mallin, 2014; Hou & Lovett, 2017). Despite the contradicting findings, these scholars do agree that position tenure is a human element that effects CEOs’ risk-taking behavior. Therefore, position tenure is considered an important moderating variable to include in this thesis.
Finally, literature shows the importance of considering the dual position of CEOs, but also show contradicting findings. Bebchuk & Fried (2004) and Matsumura & Shin (2005) indicate that CEO duality has negative consequences, as dual CEOs gain more power. This enables them to weaken board control and behave opportunistically, thereby neglecting shareholders’ interests. However, Li & Tang (2010) and Dutta, Malhotra & Zhu (2014) emphasis the positive effects of dual CEOs, as this additional power enables them to take more risks, because they often underestimate the consequences of their actions.
LITERATURE REVIEW AND HYPOTHESES
This section discusses the most relevant literature and theories that form the theoretical base for this study. After critically reviewing the relevant literature and establishing relationships, a hypothesis is drawn at the end of each paragraph. This section ends with the conceptual model, illustrating all hypothesized relationships.
Agency theory
Previous research on the antecedents of (cross-border) M&As shows that organizations in which CEOs obtain higher compensation, engage in more M&A activities (Agrawal & Walkling, 1994). Moreover, equity-based CEO compensation positively influences M&A activities (Sanders, 2001). Furthermore, Jensen & Meckling (1976) and Sanders (2001) argue that the agency theory of incentives is an approach to study the antecedents and effects of CEO compensation. Indeed, M&As are an interesting strategic decision that offers the opportunity to investigate the impacts of equity-based CEO compensation (Sanders, 2001).
failures (Beatthy & Zajac, 1994; Eisenhardt, 1989; Hoskisson, Hitt & Hill, 1993). Therefore, CEOs can be characterized as risk-averse. Lastly, clashes of interests might occur due to differences in the time horizon of CEOs’ and shareholders’ visions. Shareholders’ interests lie in sustaining the growth of the organization and increasing share prices in the long run, while CEOs want to make profit in the short-term to maximize their compensation (Matsumura & Shin, 2005). CEOs will probably not be working for the same organization their whole lives and are therefore more likely to be reluctant to engage in long-term projects (Sanders, 2001).
down (Matsumura & Shin, 2005). Indeed, they have more to gain than to lose. On the other hand, it might be difficult to stimulate CEOs to engage in risky behavior without equity-based compensation, as CEOs will protect their compensation by minimizing strategic risk-taking (Gray & Cannella, 1997; Miller et al., 2002). Indeed, the potential losses might outweigh the potential gains in this case.
Risk can be defined as the degree of uncertainty in outcomes (Sitkin & Pablo, 1992). The acquisition of YouTube by Google is an example of such a situation. Google acquired YouTube when the organization was not even making profit yet and future results were uncertain, hence Google took a risky strategic decision. Other large organizations in the same industry, like Microsoft, did not think that YouTube would have the potential to be a successful moneymaker, therefore they did not dear to take the risk. Google did take the risk and look at YouTube now, it turned out to have potential to be successful after all (Finkelstein et al., 2009).
engaging in cross-border M&As bears great risks, but can also increase share returns significantly.
To conclude, equity-based CEO compensation has the power to align CEOs’ and shareholders’ interests by offering CEOs stock options and restricted stock awards. The agency theory thus focuses on the function of future equity-based wealth in encouraging risky behavior of CEOs. Taking strategic risks can result in high returns, benefiting both shareholders’ value and CEOs’ compensation. Considering that engaging in unrelated cross-border M&As bears great risks, but also has the potential to increase share prices significantly, it is reasonable to expect that equity-based CEO compensation positively influences unrelated cross-border M&As.
Hypothesis 1: equity-based CEO compensation encourages CEOs to engage in unrelated cross-border M&As.
Upper echelons theory
executives”, referring to the relationship between individual characteristics and strategic choices, consequently reflecting the organizational performance. Furthermore, Haleblian et al. (2009) infer that M&As are not only affected by the structure of CEOs’ compensation, but also by their individual-based characteristics, indicating the importance of including such effects in this study.
Since CEOs’ characteristics have such a significant influence on their behavior and strategic choices, the moderators in this thesis focus on the human element in making strategic choices and how this may influence the relationship between equity-based compensation and unrelated cross-border M&As. This thesis will study the influences of the CEOs’ gender, position tenure and CEO duality.
Gender
M&A deals and more likely to avoid possible debts. Furthermore, Faccio et al. (2015) found that in organizations run by women CEOs, financial assets are not distributed as effectively as in organizations run by men, leading to strategic investments that are not obtaining maximum value-growth. This can be explained by underinvestment, which happens if an organization does not engage in activities with profit opportunities. In other words, the risk-aversion of women CEOs might prevent them from increasing investments. A possible explanation for why female CEOs are more risk-averse can be explained by the unemployment risk diversity between genders. Faccio et al. (2015) found that engaging in risky behavior is positively related with the possibility of a CEO losing his or her job. Moreover, if female CEOs experience more difficulties in applying for a new job, they will take less risks in their current CEO position, thereby protecting their job and compensation.
To conclude, although women are underrepresented in CEO positions, the females that did reach the top differ from their male counterparts. The differences between gender result in different behaviors, reflecting their level of strategic risk-taking. Therefore, the gender of a CEO has a major influence on the organization, which indicates the importance of studying the influences of gender on the relationship between equity-based compensation and unrelated cross-border M&s. Especially the finding that female CEOs prefer to avoid risk-taking and are loss-averse, since this may affect a CEO’s perception of the value at risk designed by equity-based compensation. Put simply, equity-equity-based compensation can be seen as a motivation for male CEOs to take more risks, but this mechanism might have other effects if the CEO is a female. Therefore, it is reasonable to expect that the gender of the CEO will influence the effect that equity-based CEO compensation has on unrelated cross-border M&As.
Hypothesis 2: female CEOs are more risk-averse than their male counterparts and will therefore weaken the relationship between equity-based CEO compensation and unrelated cross-border M&As.
Position tenure
position, the more self-assured they will become and the more challenges they will take in their strategic choices (Kor, 2006; Orens & Reheul, 2013). Furthermore, advanced tenure gives CEOs knowledge about resources of the organization, making it easier for them to recognize opportunities outside the organization and transfer them into the organization (Kor, 2006). Greve & Mitsuhashi (2007) studied the effects of CEOs’ position tenure in Japanese organizations and conclude that longer-tenured CEOs reflect more power and are more likely to take initiative and implement strategic changes.
Nevertheless, Farag & Mallin (2014) found that shorter-tenured CEOs will actually have a higher level of risk-tolerance, because they focus more on the external environment, are open-minded and more amendable to innovative ideas compared to CEOs with a longer tenure. Another possible explanation for the longer-tenured CEOs’ risk-aversion can be found in the study of Simsek (2006), who infers that if CEOs maintain their position for too long, they might get too committed to their own patterns and previous profits. In addition, they have run the organization for a long time and come nearer to the end of their careers. In such cases, the potential losses of previous profits usually outweigh the benefits of extra profits. Put simply, they have more to lose than to gain when making risky strategic decisions, and therefore prefer the stability of the current strategies, resulting in risk-averse behavior. Furthermore, Hou & Lovett’s (2017) study found that equity-based compensation can resolve the agency problem, but only for short-tenured CEOs, since the effect that equity-based compensation has on CEOs’ risk-taking behavior will decrease as their tenure increases. These findings are in line with Sanders’ (2001, p. 481) findings that “tenure, and the risk aversion that it brings, will likely reduce the effect of stock option pay on executives’ risk propensity”.
To conclude, although the influence of position tenure seems to be contradicting, scholars conclude that tenure is a human element that plays an important role in CEOs’ strategic choices as it significantly effects their risk-taking behavior. This thesis concludes that it is reasonable to expect that advanced tenure will lead to risk-aversion since CEOs have more to lose, making it less likely that equity-based compensation will encourage CEOs to engage in unrelated cross-border M&As.
Duality
As discussed, CEOs are generally risk-averse to protect their jobs and pay, while shareholders are risk-neutral as they can easily diversify their risks by holding shares of organizations in different industries. Therefore, a clash of interest regarding the preferred level of strategic risk-taking exists between the two parties (Jensen & Meckling, 1976; Eisenhardt, 1989). To align the interests, the Board of Directors is in charge of representing the interests of the shareholders and aligning the interests of both parties (Matsumura & Shin, 2005). The board is thus responsible for designing the compensation structure that encourages CEOs to engage in unrelated cross-border M&As.
more reluctant to engage in unrelated cross-border M&As as this is a risky strategy with uncertain outcomes.
Nevertheless, some scholars found that CEO duality can actually align the interests of CEOs and shareholders (Li & Tang, 2010; Dutta et al., 2014). CEOs in this dual position are not only characterized by power, but also have a high hubris and overconfidence. They therefore often underestimate the possibility that strategic risks may fail; thus, they engage in more risky behavior (Li & Tang, 2010). Overconfidence thus positively influences the level of strategic risk-taking of CEOs. Therefore, overconfidence of CEOs enlarges the likelihood of organizations engaging in unrelated cross-border M&As(Dutta et al., 2014).
To conclude, although evidence also shows that dual CEOs can actually take more strategic risks, this thesis argues that CEOs who serve as the chairman of the Board of Directors will have more power to weaken board control. They may use their power to behave opportunistically, for example by trying to reduce the level of risk in their compensation. Furthermore, this duality enables them to shape the strategic decisions of the organization to make sure they are aligned with their own risk-aversion. This makes it less likely they will engage in unrelated cross-border M&A. In other words, dual CEOs will try to reduce their level of risk exposure in both compensation structure and strategy, making it less likely that the effect of equity-based compensation will lead to CEOs taking higher levels of risk.
Conceptual model
The conceptual model in figure I is developed based on the literature review. The model illustrates the positive relationship between equity-based CEO compensation and unrelated cross-border M&As. Furthermore, it illustrates the weakening effect of the three moderators on the aforementioned relationship.
METHODOLOGY
This section discusses the methodology used in this thesis to test the hypothesized relationships as stated in the previous chapter. Explanations for the sample and data collection processes are provided, followed by a description of the variables used. This section ends with an explanation of the analytical technique that is performed on the data.
Sample and data collection
The sample of this thesis contains publicly listed US firms that were ranked in the Fortune 500 from 2013 until 2018. The first of January 2013 has been chosen as the starting point of the data since most firms have recovered from the financial crisis by this year. According to Hausman & Johnston (2014), the US economy has gotten stronger in the first months of 2012 but was still very fragile. A year later, in 2013, the economy has recovered significantly, making it more likely firms will engage in risky behavior again. Furthermore, 2018 was taking as the end year, as annual reports are not complete yet for 2019.
The sample was further cut in two ways. Firstly, firms of which CEOs held a temporary or co-CEO position where omitted from the sample as their risk-taking behavior might be different compared to permanent CEOs. Temporary CEOs are for example reluctant to make strategic changes that affect the organization in the long-run (Ballinger & Marcel, 2010). Furthermore, CEOs in a joint position have to share decision-making processes and power and are therefore likely to have a different effect on behavior. Secondly, firms that were missing one or more of the necessary variables were omitted from the sample. The sample and data collection process are thus interconnected, as missing data influenced the quantity of the sample. The necessary data could not be found in one database; therefore, a variety of databases is used to collect all data.
firm. Furthermore, cross-border M&As were identified for the selected firms by using a combined search in Orbis and Zephyr. Orbis contains a broad range of information on the most important organizations all over the world (University of Groningen, n.d.). By first selecting organizational criteria in Orbis, the database can transfer the selected criteria to Zephyr, which is a database that provides cross-border M&A information. In Zephyr, more criteria were added, consequently leading to a limited number of cross-border M&A deals that met the selected criteria. In this way, necessary SIC-codes could be collected. SIC-codes indicate the industry that an organization is active in. By comparing the first two digits of the four-digit SIC codes of the acquiring and target firms, unrelated M&As were identified. Furthermore, data on the characteristics of the organizations’ CEOs were collected. In order to do so, Boardex was used to find the CEOs’ gender, position tenure and duality information. Lastly, Boardex was also used to collect data on CEO compensation over the years 2013 until 2018.
Since some firms did not disclose the necessary information, not all data was complete for every firm. In this case, the data was searched for manually. Firms that were still missing data after this manual search were omitted from the sample. The data collection started with a sample of 120 firms, but due to missing variables and non-permanent CEO positions, the sample was eventually reduced to 77 firms. This study performs panel data analysis over these firms in a six-year time frame, resulting in a total of 462 observations. Furthermore, these 77 firms together engaged in 40 unrelated cross-border M&As. An overview of the unrelated cross-border M&As can be found in table I in Appendix A.
Dependent variable
cross-Independent variable
The independent variable in this study is defined as equity-based CEO compensation of the CEOs of the firms included in this sample. As different CEOs are appointed over the years 2013 until 2018, multiple CEOs per firm are included in this study. To be more specific, the dataset includes 126 different CEOs. The equity-based compensation of these CEOs is measured by using the equity-linked compensation ratio, which is defined as the percentage of total compensation of an individual that is based on equity (BoardEx, n.d). This data is collected over the year prior to the focal year (t – 1), as it is assumed that equity-based CEO compensation will affect behavior in the subsequent year.
Moderating variables
The moderating variables are expected to have a weakening effect on the relationship between equity-based CEO compensation and unrelated cross-border M&As. The standardized values of the moderating variables and the dependent variable are used to make the interaction term.
Gender. The first moderating variable is the gender of the CEO, which is simply
measured by the fact if the CEO is a male or a female. The gender of the CEOs is measured at the end of each focal year (t).
Position tenure. The second moderating variable is the position tenure of the CEO. The
position tenure is measured at the end of each focal year (t), by calculating time between the year that the CEO is assigned and the end of the focal year. Hence, it is measured in years.
CEO duality. The last moderating variable is CEO duality. If the CEO was holding the
position of CEO as well as chairman, the CEO is identified as a dual CEO. The dual position of the CEO is measured at the end of each focal year (t).
Control variables
To diminish the effects of confounding variables, control variables are included. In other words, variables outside this thesis that might drive a CEO to engage in unrelated cross-border M&As must be controlled for. In this study, the following control variables are included.
The level of product diversification. The first control variable is the level of product
activities that they are not familiar with and are often different compared to the firm’s main view. Firms that already have considerable diversifying experience have the capability to better directinternaldifferences or difficulties (Hitt, Hoskisson & Kim, 1997). Firms with a low level of product diversification are often in absence of the human resources and know-how necessary to successfully direct a globally diversified corporation. Furthermore, firms with a high level of product diversification have generally created an organization consisting of multiple divisions (Hoskisson & Hitt, 1988), which allows them to establish processes to manage conflicts between business segments like resource-allocation (Kling, Ghobadian, Hitt, Weitzel & O’Regan, 2014). In other words, highly diversified firms are facing less uncertainty, as they have more experience in coping with the risks. The level of product diversification of the acquiring firm is thus a variable that can have significant influence on the choice of engaging in an unrelated cross-border M&A as the risks are considered less threatening when the level of product diversification is high. The level of product diversification is measured through the number of industries the acquiring firm was active in in the time period of 2013 until 2018. Looking at the first two digits of the SIC-code, there has been identified in how many industries the firms were active in.
Firm size. The second control variable is firm size. Larger firms face lower risks in their
Firm leverage. The third control variable is firm leverage. Friend & Lang (1988) explain
that there exists a relationship between a firm’s leverage levels and their cost of capital. A high degree of firm leverage will decrease the cost of capital, consequently lowering the share prices. In other words, the opportunity costs of making a specific investment will be lower if a firm has a higher leverage level. Furthermore, Aivazian, Ge & Qiu (2005) found that there exists a negative relationship between firm leverage and their investing behavior. The degree of leverage in the firm is thus a variable that can influence a firm’s risk-taking behavior as well as its decision to invest and acquire a foreign, unrelated firm. Therefore, this study controls for firm leverage, which is measured through the solvency ratio at the end of each focal year (t).
CEO’s (international) experience. Lastly, this study controls for the (international)
experience of the CEOs as this significantly influences their international risk-taking behavior. Although data on CEOs’ international experience would be the most accurate way to control for this variable, it was not possible to directly obtain this data from the databases. Collecting this data manually goes beyond the time of this study. Therefore, the age, educational background and nationality of the CEO are included as control variables representing the (international) experience of the CEO. These variables are measured at the end of each focal year (t)
Age. Studies investigating changes in risk-tolerance due to changes in age widely
conclude that taking personal risks and engaging in risky behavior in general reduce when people get older(Gardner & Steinberg, 2005; Elsaid & Ursel, 2012). In addition, age also has shown to influence risky behavior in corporations particularly as senior investors’ high-risk holdings are characterized by less equity(Elsaid & Ursel, 2012). In other words, the older they get, the more risk-averse they will become. Wiersema & Bantel (1992) studied the effect of demographic characteristics on strategic risk-taking in organizations. They measured strategic risk-taking as alternations in the level of diversification and found that organizations are expected to adjusttheir strategy if the organization has young executives. As CEOs get older, their adaptability will decline and they will become more reluctant to alternate due to the increasing concern of a stable economic situation in the end phase of their professions (Wiersema & Bantel, 1992). Thus, theyare more likely to be reluctant towards risk-taking.
Educational background. The educational background of CEOs is an important
understanding of ambiguity, are more accessible towards change and their knowledge and capabilities allow them to efficiently search for new opportunities in foreign markets. Furthermore, these higher educated CEOs have a stronger cognitive complexity, which makes them better in grasping new ideas, understanding new conducts, and interpreting issues as well as identifying innovative solutions to complex challenges. This increases the willingness of CEOs to invest in risky strategies (Chen, 2012).
Nationality. Every nationality is characterized by its own, often unique, values.
These values have a profound influence on the decision-making processes of CEOs (Nielsen & Nielsen, 2013). The CEOs of the organizations included in the sample represent 12 different nationalities, which indicates the importance of measuring the influence of nationality in this study. Although CEOs have increased their knowledge and skills about economic growth over the years, the impact of their citizenship on their cognitive bases, and thus decision-making processes, stays thoroughgoing and long-lasting. The dissimilarities embedded in the nationality of CEOs are therefore difficult to wipe out (Nielsen & Nielsen, 2013). Meyer (2014) complements these statements by inferring that “even with English as a global language, it is easy to fall into cultural traps that endanger careers and sink deals”. In other words, national and cultural differences have a significantly strong influence, and by neglecting these differences, careers and deals are at risk.
Analytical technique
To make sure that the most appropriate analytical technique is chosen for this study, some underlying properties of the data were considered before running any regresion. By doing so, one can determine difficulties in the dataset that have to be taken into account while analyzing the data. Without knowledge of these difficulties in the dataset, it is challenging for a researcher to determine which regression fits the data best (Hill, 2010).
Since the data is non-normally distributed, the widely used ordinary least square model is not appropriate to be used. Furthermore, the dependent variable contains count data and cannot take a value lower than zero (Grace-Martin, n.d.). The Institute for Digital Research & Education (n.d.) infers that the logistic regression is a commonly used regression in count data analysis and might therefore also be considered as a potential fit for the data used in this study. In a logistic regression, the dependent variable takes either the value zero or one. Zero indicates that a specific event did not happen, whereas one indicates that the event did happen. Although this regression might be applicable if we changed our dependent variable to a binary variable, we would have to throw away valuable data, which often decreases the power of the regression (Grace-Martin, n.d.). Hence, by indicating specifically how many times a certain event occurred, it increases the power of the analysis.
A regression model that takes into account the counted (non-binary) data is the Poisson regression model. This regression is almost identical to a logistic analysis, as it also uses maximum likelihood estimation. Since count data is commonly characterized by Poisson distributed data, this type of data is appropriate for a Poisson regression (Grace-Martin, n.d.). Furthermore, the histogram of the data (y) is characterized by a right-tail with zero as the most frequent value as can be seen in figure II in Appendix B. This can be an indication that the Poisson regression is an appropriate analytical technique for our dataset. To be certain about this matter, some basic assumptions were checked before running the regression (Laerd Statistics, n.d.). Firstly, the dataset must contain data that is countable and positive. In our dataset, the dependent variable contains data ranging from zero to four. Hence, the dataset meets this assumption. Secondly, one or more independent variables must be included in the study, which is also the case in this study. Thirdly, this study meets the criteria of having an independence of observations. Fourthly, the observations must be Poisson distributed, which is also the case in with our observations. Lastly, the mean and variance of the data must be equal. To test this assumption, a goodness-of-fit test called the Pearson chi-squared test is performed. The results showed that the Pearson chi-squared test is not significant, indicating that the mean and the variance are not equal. Therefore, the dataset used in this study violates this last assumption.
RESULTS
In this section, the results of the analysis are presented. The descriptive statistics are provided first, followed by the correlations. Furthermore, the results of the Poisson regression are provided. Lastly, the robustness of the results is discussed by means of a multilevel analysis.
Descriptive statistics
Table II shows the descriptive statistics. It shows that there are 462 observations. The dependent variable unrelated cross-border M&As has a mean of 0.09, with zero unrelated cross-border M&As as minimum and four as maximum per organization per observation (i.e., year). Furthermore, the independent variable, measured as equity-based compensation ratio, has a mean of 0.86, which means that (on average) 86% of the compensation of the CEOs is based on equity. The minimum amount of equity compensated is 0% and the maximum 100%. Moreover, the moderating variable CEO tenure has a mean of 6.13 years, with 0.05 years as minimum and 49 years as maximum position tenure. The moderating variables CEO gender and CEO duality are dummy variables. Lastly, the control variable CEO nationality is a categorical variable, with each nationality representing its own number ranging from 1 to 12.
Table II: Descriptive statistics
Variable Observations Mean Std. Dev. Min Max
Unrelated cross-border M&A 462 0.0866 0.3742 0 4
Equity compensation ratio 462 0.8570 0.1994 0 1
CEO gender 462 0.0974 0.2969 0 1 CEO tenure 462 6.1318 6.5577 0.05 49 CEO duality 462 0.3463 0.4763 0 1 Product diversification 462 2.9978 2.0562 1 12 CEO age 462 59.5779 6.6435 28 88 CEO nationality 462 1.6104 2.0661 1 12 CEO education 462 1.9351 0.8254 0 4
Firm size (log) 462 11.5813 1.0093 8.7542 14.6484
Correlations
The correlation matrix in table III shows the correlations between all variables. As can be seen from the table, quite some variables are significantly correlated, with correlations ranging from -0.0939 to 0.5073. To check whether two variables measure the same underlying feature, there has to be checked for multicollinearity. A threshold of 0.7 will be used. Hence, variables that exceed this threshold will have to be omitted. As the largest value is 0.5073, there can be stated that there is no presence of multicollinearity in the dataset. To be absolutely sure that no multicollinearity is present in the dataset, the VIF values are also used as an additional mechanism. According to Shieh (2011), the VIF values are an official and commonly used mechanismto determine the presence of multicollinearity. Although there is no official norm, a standard threshold is that VIF values of 10 or larger may be problematic (Yoo, Mayberry, Bae, Singh, He & Lillard, 2014). Hence, these values must be omitted. Table IV shows the VIF values of the variables. Since the highest VIF value has a value of 2.32, the threshold of 10 is not exceeded. Therefore, we can conclude that there is no multicollinearity present in our dataset.
Table III: Correlations Unrelated cross-border M&As Equity-based compensation CEO gender CEO tenure CEO duality Product diversi-fication CEO age CEO nationality CEO education Firm size (log) Firm leverage Unrelated cross-border M&As 1.000 Equity-based compensation -0.1079* 1.000 CEO gender -0.0175 0.1130* 1.000 CEO tenure 0.1151* -0.4441* -0.1174* 1.000 CEO duality -0.0140 -0.1011* 0.0703 0.3311* 1.000 Product diversification 0.0454 -0.0577 0.1390* 0.1037* 0.1498* 1.000 CEO age 0.0051 0.1130* 0.0022 0.5073* 0.1614* 0.0110 1.000 CEO nationality 0.0241 0.0675 0.1540* -0.0779* -0.0603 0.2015* 0.0689 1.000 CEO education -0.0520 -0.0216 0.1941* 0.0173 0.0861* 0.1188* -0.0153 -0.1383* 1.000
Firm size (log) 0.1198* -0.0038 0.1408* -0.0497 -0.0863* 0.0730 0.0754 -0.0853* 0.0582 1.000
Table IV: VIF values
Variable VIF 1/VIF
Equity-based compensation 1.56 0.64 CEO gender 1.15 0.87 CEO tenure 2.32 0.43 CEO duality 1.20 0.83 Product diversification 1.13 0.88 CEO age 1.75 0.57 CEO nationality 1.16 0.87 CEO education 1.10 0.91
Firm size (log) 1.10 0.91
Total assets 1.08 0.92
Firm leverage 1.11 0.90
Results Poisson Regression
Hypothesis 1 states that equity-based CEO compensation encourages CEOs to engage in unrelated cross-border M&As. However, model 2 in table V tests this hypothesis and shows that there is a negative and significant relationship (b = -1.2355, p<0.01) between equity-based CEO compensation and unrelated cross-border M&As. Furthermore, model 4 also shows a significantly negative relationship (b = -1.4896, p<0.05), but the rest of the models indicate insignificant results. Hence, hypothesis 1 is not supported.
Hypothesis 2 states that female CEOs are more risk-averse than their male counterparts and will therefore weaken the relationship between equity-based CEO compensation and unrelated cross-border M&As. Model 3 in table V tests this hypothesis and shows a significantly negative relationship (b = -0.1679, p>0.1) Therefore, this result cannot be interpreted. In model 4 the interaction term between CEO gender and equity-based compensation is added to the model, showing a negative but also insignificant result (b = -3.0373, p>0.1). Furthermore, when running the full model in model 7, the interaction term remains insignificant. Based on the insignificant results, hypothesis 2 is not supported.
and also not significant (b = -3.1663, p>0.1). When running the full model in model 7, the results remain insignificant. Therefore, hypothesis 4 is not supported.
In addition, some control variables also show significant results. Firstly, there exists a positive and significant relationship between firm size and the number of unrelated cross-border M&As in all models. Secondly, model 3 shows a significantly negative influence of CEO age on the number of unrelated cross-border M&As. Thirdly, model 2, 3 and 6 show a negative and significant result of the variable CEO education. Lastly, model 7 shows a positive and significant relationship between CEO nationality and the number of unrelated cross-border M&As in the full model.
Table V: Poisson regression with robust standard errors
Model 1 Model 2 Model 3 Model 4 Model 5 Model 6 Model 7
VARIABLE Unrel. CB M&A Unrel. CB M&A Unrel. CB M&A Unrel. CB M&A Unrel. CB M&A Unrel. CB M&A Unrel. CB M&A Equity-based compensation -1.2355*** 0.1374 -1.4896** -0.9001 -0.3064 -0.7171 (0.4746) (0.8450) (0.6455) (1.0374) (0.9382) (1.1520) CEO gender -0.1679 -0.1441 0.2313 (0.6316) (0.6829) (0.7025) CEO tenure 0.0785** 0.0936** 0.1068*** (0.0384) (0.0376) (0.0369) CEO duality -0.2253 0.0236 -0.3723 (0.3304) (0.3655) (0.3288) CEOgender x equity -3.0373 3.9855 (5.2589) (4.9435)
CEO tenure x equity 0.0875 0.1192*
(0.0676) (0.0630)
CEO duality x equity -3.1663 -3.3872
(2.9363) (3.0751) Product diversification 0.0425 0.0330 0.0286 0.0389 0.024 0.0399 0.0173 (0.1077) (0.1058) (0.1093) (0.1048) (0.1055) (0.1007) (0.1009) CEO age 0.0025 -0.0003 -0.0539* -0.0008 -0.0260 -0.0005 -0.0174 (0.0302) (0.0191) (0.0326) (0.0189) (0.0376) (0.0178) (0.0354) CEO nationality 0.0463 0.0658 0.0958 0.0805 0.1076 0.0626 0.1144* (0.0829) (0.0786) (0.0683) (0.0756) (0.0710) (0.0748) (0.0677) CEO education -0.3193 -0.3410* -0.4245* -0.3326 -0.2890 -0.3461* -0.2412 (0.2082) (0.2008) (0.2191) (0.2076) (0.2661) (0.1983) (0.2692) Firm size (log) 0.5403** 0.5456** 0.5282** 0.5556** 0.6498** 0.5082** 0.6007**
Robustness check
A generally used practice in empirical research is a robustness test. In the present study, this test is used to check how the results act when the analytical technique is changed. In case the results are acceptable and robust, it is an indication that the research structure is valid (Lu & White, 2014). Put simply, a robustness test checks whether the same conclusions can be drawn when, in this case, the regression type changes. The reliability of the results in this study is tested by running a multilevel analysis. Table VI shows the results of this analysis. It can be seen that the independent variable equity-based CEO compensation remains significantly negative on a 99% confidence interval in models 2 and 4 (b = -0.1819; b = -0.1884). Also, the influence of CEO tenure remains significantly positive in model 3, 5 and 7. Furthermore, the table shows that the control variable firm size is significantly positive in all models, which is in line with the results of the Poisson regression. However, one additional significant relationship must be mentioned as well, as the moderating effect of CEO duality turns out to be significantly negative in models 6 and 7 (b = -0.3928, p<0.1; b = -0.3973, p<0.1).
Table VI: Multilevel analysis for robustness check
Model 1 Model 2 Model 3 Model 4 Model 5 Model 6 Model 7
VARIABLE Unrel. CB M&A Unrel. CB M&A Unrel. CB M&A Unrel. CB M&A Unrel. CB M&A Unrel. CB M&A Unrel. CB M&A Equity-based compensation -0.1819*** -0.0682 -0.1884*** -0.1205 -0.0903 -0.0859 (0.0582) (0.0987) (0.0603) (0.0922) (0.0683) (0.0782) CEO gender -0.0149 -0.0202 0.0015 (0.0455) (0.0528) (0.0516) CEO tenure 0.0076** 0.0082* 0.0088* (0.0040) (0.0054) (0.0052) CEO duality -0.0247 0.0019 -0.0240 (0.0225) (0.0260) (0.0204)
CEO gender x equity -0.1247 -0.2034
(0.4084) (0.4152)
CEO tenure x equity 0.0056 0.0092
(0.0067) (0.0064)
CEO duality x equity -0.3928* -0.3973*
(0.2001) (0.2162) Product diversification 0.0044 0.0039 0.0032 0.0042 0.0019 0.0055 0.0046 (0.0121) (0.0109) (0.0109) (0.0108) (0.0107) (0.0103) (0.0100) CEO age -0.0001 0.0005 -0.0035 0.0004 -0.0026 0.0006 -0.0014 (0.0027) (0.0022) (0.0025) (0.0022) (0.0028) (0.0019) (0.0026) CEO nationality 0.0056 0.0062 0.0082 0.0070 0.0088 0.0052 0.0079 (0.0100) (0.0095) (0.0091) (0.0096) (0.0091) (0.0090) (0.0086) CEO education -0.0242 -0.0249 -0.0229 -0.0228 -0.0218 -0.0269 -0.0203 (0.0172) (0.0164) (0.0165) (0.0169) (0.0174) (0.0161) (0.0176) Firm size (log) 0.0519* 0.0503* 0.0491* 0.0516* 0.0534* 0.0480* 0.0522* (0.0295) (0.0282) (0.0279) (0.0288) (0.0277) (0.0266) (0.0267) Firm leverage 0.0014 0.0011 0.0009 0.0011 0.0010 0.0008 0.0007 (0.0014) (0.0014) (0.0014) (0.0014) (0.0014) (0.0014) (0.0014) Constant -0.5232 -0.3719 -0.2478 -0.3825 -0.3296 -0.4285 -0.4073 (0.3182) (0.3059) (0.3103) (0.3057) (0.3156) (0.2890) (0.2962) Random-effects parameter
Firm (level 1) 3.16e-10 1.08e-15 5.79e-16 3.15e-10 1.34e-13 8.40e-16 2.78e-11 (2.49e-08) (7.79e-13) (4.31e-14) (1.89e-08) (9.36e-12) (6.32e-14) (2.94e-10) Individual (level 2) 0.0076 0.0048 0.0045 0.0049 0.0048 0.0029 0.0027
(0.0456) (0.0046) (0.0176) (0.0240) (0.1960) (0.0243) (0.0046)
Number of observations 462 462 462 462 462 462 462
FINDINGS
This section discusses the results of the regressions provided in the previous section. Furthermore, it provides a discussion of theoretical contributions, managerial implications and limitations of this study, followed by recommendations for future research. This section ends with the conclusion.
Discussion
The aim of this thesis was to study the impact that equity-based compensation has on CEOs’ strategic risk-taking behavior, and how individual-based characteristics influence this impact. Specifically, how CEOs’ gender, tenure and duality moderate the relationship between equity-based CEO compensation and unrelated cross-border M&As.
cross-does not bear additional risk, but actually reduces risk. As explained by Deutch et al. (2011), shareholders can easily diversify their risks by diversifying their portfolios. The same situation happens when CEOs decide to acquire an unrelated organization (Amihud & Lev, 1981). In other words, CEOs reduce their risks by diversifying their organization’s portfolio. However, reducing risks in such a manner does not benefit shareholders, because they can individually accomplish the preferred amount of risk exposure by diversifying their portfolios (Levy & Sarnat, 1970; Alberts & Segall, 2003). Furthermore, since shareholders can easily and against rather low expenses diversify their portfolios through the capital market, the advantages of engaging in an unrelated cross-border M&A are extremely uncertain for them. For CEOs, however, the advantages are much higher. CEOs can decrease the risks of losing jobs and harming future wealth, since unrelated cross-border M&As will commonly result in a stable revenue flow. So, unrelated cross-border M&As will not necessarily benefit shareholders but can benefit CEOs (Amihud & Lev, 1981). The statements of Amihud & Lev (1981) are conflicting with the statements of Herger & McCorriston (2015) who explain that unrelated cross-border M&As are considered a form of M&As that bears additional risks due to higher volatility level and information asymmetries.
As hypothesized in this thesis, higher equity-based CEO compensation would lead to CEOs increasing their wealth in the long-run by engaging in unrelated cross-border M&As. Nevertheless, empirical analysis showed the opposite results, which might be explained by the diversifying nature of unrelated cross-border M&As as stated by Amihud & Lev (1981). Higher equity-based CEO compensation can than lead to CEOs trying to protect or stabilize their wealth in the long-run by diversifying their risks through unrelated cross-border M&As. Thus, unrelated cross-border M&As might not be the best reflection of a strategic risk-taking activity, thereby possibly explaining the negative relationship between equity-based CEO compensation and unrelated cross-border M&As.
Although these results are conflicting with the proposed hypothesis, a possible explanation can be found in the study of Adams & Ragunathan (2017). They investigated risk-aversion differences between gender in the financial sector and conclude that women directors are not more risk-averse than men directors. More specifically, they did not find a difference in risk-tolerance between gender. However, the authors also express that, even after their study, the understanding of the importance of gender differences for organizational results remains unclear. Hence, they are uncertain when these differences matter. Furthermore, Charness & Gneezy (2012) complement these findings by inferring that, although a lot of research points out that women are more risk-averse, it is not always a clear case. Thus, the influence of gender can differ per study. They furthermore stress the need to study the boundaries of these results.
Another possible explanation for the insignificant effect of gender may lay in the proportion of men and women included in the sample. This thesis is based on a sample of 77 organizations in a time frame of six years, hence 462 observations. However, 417 of these observations contain male CEOs and only 45 females. In other words, more than 90% of the CEOs in the sample are males. As explained by Furnham (2005), women face invisible obstacles in trying to reach top positions within organizations, also called the glass-ceiling. As a result, women are extremely underrepresented in CEO positions which is also notable in our sample. This thesis used the standardized results of gender and equity-based compensation to create an interaction term. However, with 90% of the CEOs being males, the mean of gender still reflects the disproportion of men and women CEOs included. In this study, the 45 female CEOs in the sample are not different from their 417 male counterparts regarding the number of unrelated cross-border M&As they engage in. However, this does not mean that this result can be generalized. It can be a good explanation though for the insignificant influence of gender as a direct effect as well as its interaction term with equity-based compensation. A sample with a more equal number of males and females might give different outcomes, more in line with the hypothesized relationship.
to have a significantly positive influence. In other words, longer-tenured CEOs lead to a predicted increase in the number of unrelated cross-border M&As in this study. Nevertheless, model 4 tests the hypothesized relationship, and there is no evidence found that CEOs’ tenure has a moderating effect on the relationship between equity-based compensation and unrelated cross-border M&As. Indeed, in this sample, the influence that the equity-based compensation of a CEO has on the number of unrelated cross-border M&As is not predicted to differ between a CEO with a position tenure of for example one year and a CEO in position for 48 years. In both cases, the CEOs in the dataset show consistent behavior over the last six years.
The positive effect a CEO’s position tenure has on unrelated cross-border M&As can be explained by the findings of Kor (2006) and Orens & Reheul (2013) as explained in the literature review section of this thesis. These authors state that longer-tenured CEOs are more self-assured and will therefore take more challenges in their strategic choices. Furthermore, advanced tenure gives CEOs knowledge about resources of the organization which makes it easier to recognize external opportunities and to transfer them into the organization (Kor, 2006). However, when studying the interaction effect of tenure with equity-based compensation, the results are insignificant. Indeed, the above explanation cannot be applied for the moderating effect of CEOs’ tenure on the relationship between equity-based compensation and unrelated cross-border M&As in this study. We are not sure how to interpret this unexpected result. Lu & White (2014) state that it is not required for every result to have a logical economic reasoning. This statement fits the unexpected insignificant result we found for the moderating effect of position tenure. Hence, this remarkable result does not make a lot of economic sense in our dataset, which is why we are uncertain about its interpretation.
Hypothesis 4 is based on the moderating effect of a CEO’s dual position and states that dual CEOs have more power to act opportunistically and reduce their risk exposure. Therefore, they will weaken the relationship between equity-based CEO compensation and unrelated cross-border M&As. However, model 3 and 6 in table V show that the results of both the direct effect of duality as well as its interaction with equity-based compensation are insignificant. Furthermore, the full model also shows insignificant results. In other words, the empirical analysis of this study did not find support that CEOs’ duality influences the number of unrelated cross-border M&As nor the relationship between equity-based CEO compensation and unrelated cross-border M&As.
does not mean that every CEO will use it to control the board. Additional personal characteristics of the CEOs might also play an important role, for example narcissism and overconfidence. In other words, this study did not take into account the determinants of CEOs using their power to weaken board control, which is where the explanation of this insignificant result might lay.
Furthermore, the empirical analysis stressed a significantly positive relationship between firm size, measured as the number of employees, and the number of unrelated cross-border M&As. This finding complements the study of Coles et al. (2002), who found that the size of the firm decreases the risk exposure of the firm. Furthermore, the result is also in line with John et al.’s (2008) statement that larger firms face lower risks in operating activities as the stability of their activities is much higher. In other words, firms with a higher number of employees are more likely to successfully implement and manage new processes allowing the acquired organization to fit in, as the risk of failure is much lower. Therefore, it is not surprising to find that firm size is positively related to the number of unrelated cross-border M&As. Moreover, the educational background of the CEOs shows a significantly negative effect on the number of unrelated cross-border M&As in three of the seven models in table V. This result is surprising since it shows the opposite relationship than expected and explained previous scholars (Hermann & Datta, 2005; Chen, 2012). However, Graham & Harvey (2001) found in their study that higher educated directors have more knowledge about advancedstrategies. According to Berger, Kick & Schaeck (2014) these tactics will decrease the organizations’ risk-taking behavior. Furthermore, CEOs with less educational attainments engage in risky activities more often. As these CEOs lack the benefitof having obtained multiple (higher) educational attainments, they feel like they have to show the knowledge and skillsthey possess by outstanding achievements. This is expected to be connected to engaging in activities with higher risks (Berger et al., 2014). In contrast, higher educated CEOs are less prone to prove their value as they do have the benefit of having multiple (higher) educational attainments. It can therefore possibly explain the finding that CEOs with a higher educational background decrease the number of unrelated cross-border M&As.
Theoretical contributions and managerial implications
By combining the agency theory with the upper echelon’s theory, the influences of individual-based differences on the relationship between equity-individual-based compensation and unrelated cross-border M&As have been studied. By doing so, this thesis contributes to the need to study these two theories mutually to improve our knowledge on the effect that CEOs can have on firm behavior (Jensen & Zajac, 2004). In spite of the fact that none of the hypothesized relationships are supported in this thesis, they can still function as a base for subsequent studies.Specifically, this thesis provides unexpected insights by showing that higher equity-based compensation leads to a decrease in the number of unrelated cross-border M&As in the largest American organizations in the last six years. Moreover, by studying gender, position tenure and duality as interaction effects, this study answers the call by multiple scholars (Amburgey & Miner, 1992; Charness & Gneezy, 2012; Adams & Ragunathan, 2017) to conduct more research on the influences of individual-based characteristics. Finally, this thesis complements existing studies on M&As. Determinants on unrelated cross-border M&As are largely unknown as they have been neglected in most research (Amihud & Lev, 1981). Despite the fact that a negative relationship is found, the information provided can be a starting point for researchers to conduct more studies on unrelated cross-border M&As.
Limitations and recommendations for future research
When writing an empirical paper, the researcher is constantly confronted by decisions that have to be made individually and which can lead to limitations in their paper (Hill, 2010). This study also has some limitations due to decisions made in the process. They will be discussed and translated into suggestions for future research.
One of the main goals of this thesis was to investigate if and how equity-based compensation can encourage CEOs to engage in risk-taking behavior. According to Herger & McCorriston (2015), unrelated cross-border M&As are considered extra risky due to higher volatility levels and information asymmetries compared to related cross-border M&As. Therefore, this specific type of cross-border M&A is used in this thesis to reflect strategic risk-taking. However, as discussed in the findings part of this paper, Amihud & Lev (1981) infer that unrelated cross-border M&As are a risk-reduction strategy. Therefore, the first limitation of this study is that the dependent variable might not be accurately reflecting a risk-taking strategy. The conflicting statements of Herger & McCorriston (2015) and Amihud & Lev (1981) make it difficult to determine if the right dependent variable has been chosen for this study. It might therefore be interesting for future research to study dependent variables reflecting other risk-taking activities, for example cross-border M&As between developing and emerging market organizations.
The other major goal of this thesis was to investigate the influence of the CEOs’ personal characteristics on the aforementioned relationship. The upper echelons theory was used to explain that individual characteristics have a significant influence on CEOs’ strategic decisions. They might therefore react differently to equity-based compensation. This thesis included three variables that reflect these individual-based characteristics, namely gender, tenure and duality. However, these characteristics are just a tip of the iceberg and by far not the only ones that impact CEOs’ decision-making processes. The second limitation of this study is thus that only a limited set of characteristics are included to measure the impact of CEOs’ characteristics. We therefore recommend future studies to include more or other individual-based characteristics as moderating variables. Especially since the influence of these characteristics still remain important and uncertain (Amburgey & Miner, 1992; Charness & Gneezy, 2012; Adams & Ragunathan, 2017).
number of unrelated border M&As. In other words, performing this specific type of cross-border M&As seems rather unique. Only 6.9% of these 462 observations contained an unrelated border M&A activity. The influence of equity-based compensation on unrelated cross-border M&As is difficult to measure if only 6.9% of the observations actually included this specific activity. Studies that have observed more unrelated cross-border M&As might provide different findings, as there is more data to measure the hypothesized relationship with. A recommendation that follows from this limitation is therefore that future studies should consider making some changes in the sample. Studies can for example include more organizations over a longer time period, or they can decide to study other countries (e.g. China or even Europe) to generate more data on unrelated cross-border M&As.
Conclusion
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