Mihajlovic agreed a deal until the end of the campaign, with the option of another year, when he replaced Filippo Inzaghi at the end of January.
Bologna recorded a vital 1-0 win at Inter Milan in his first match in charge and ended its campaign strongly, finishing 10th on the table after a run of two defeats in 12 games.
That upturn in form led to reports Mihajlovic could be a target for managerless Roma, Lazio and even champion Juventus, while he was also linked with a return to AC Milan.
But Mihajlovic is staying put after signing a new contract.
"I'm happy," he said. "I really wanted to stay at Bologna because the club has an ambitious project and a fantastic group has formed over the past months and the fans have always supported us.
"We're working in perfect harmony with the chairman and directors to reinforce our squad. The foundations are there for excellent results."
Mihajlovic started his managerial career with Bologna in 2008 and has also had spells in charge of Serie A sides Sampdoria and Torino.