Abstract

http://ssrn.com/abstract=1647073
 
 

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How do CEOs Matter? The Effect of Industry Expertise on Acquisition Returns


Claudia Custodio


Arizona State University - W. P. Carey School of Business

Daniel Metzger


Stockholm School of Economics - Department of Finance; London School of Economics & Political Science (LSE) - Financial Markets Group

May 1, 2013


Abstract:     
This paper shows how chief executive officer (CEO) characteristics affect the performance of acquirers in diversifying takeovers. When the acquirer's CEO has previous experience in the target industry, the acquirer's abnormal announcement returns are between 1.2 and 2.0 percentage points larger than those generated by a CEO who is new to the target industry. This outcome is driven by the industry-expert CEO's ability to capture a larger fraction of the merger surplus. Industry-expert CEOs typically negotiate better deals and pay a lower premium for the target. This effect is stronger when information asymmetry is high and in bilateral negotiations compared to auctions. We also find that industry-expert CEOs on average select lower surplus deals. This evidence is consistent with industry-expert CEOs having superior negotiation skills.

Number of Pages in PDF File: 67

Keywords: CEO characteristics, CEO experience, bargaining ability, mergers and acquisitions

JEL Classification: G30, G32, G34, J24, M59

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Date posted: July 24, 2010 ; Last revised: June 1, 2013

Suggested Citation

Custodio, Claudia and Metzger, Daniel, How do CEOs Matter? The Effect of Industry Expertise on Acquisition Returns (May 1, 2013). Available at SSRN: http://ssrn.com/abstract=1647073 or http://dx.doi.org/10.2139/ssrn.1647073

Contact Information

Claudia Custodio
Arizona State University - W. P. Carey School of Business ( email )
W. P. Carey School of Business
PO Box 873906
Tempe, AZ 85287-3906
United States
480-965-8074 (Phone)
480-965-8539 (Fax)
HOME PAGE: http://www.public.asu.edu/~cpcustod/
Daniel Metzger (Contact Author)
Stockholm School of Economics - Department of Finance ( email )
SE-113 83 Stockholm
Sweden
London School of Economics & Political Science (LSE) - Financial Markets Group ( email )
Houghton Street
London WC2A 2AE
United Kingdom
Feedback to SSRN


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