How do CEOs Matter? The Effect of Industry Expertise on Acquisition Returns
Arizona State University - W. P. Carey School of Business
Stockholm School of Economics - Department of Finance; London School of Economics & Political Science (LSE) - Financial Markets Group
May 1, 2013
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
Date posted: July 24, 2010 ; Last revised: June 1, 2013
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