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CEOs’ Military Experience and Acquisition DecisionsChen LinChinese University of Hong Kong (CUHK) - Department of Finance Yue MaCity University of Hong Kong (CityUHK) - Department of Economics & Finance Micah S. OfficerLoyola Marymount University - Department of Finance and Computer Information Systems Hong ZouCity University of Hong Kong September 23, 2011 Abstract: We examine the effect of a CEO’s military service on merger and acquisition decisions and outcomes. We find that acquirers led by CEOs with military service experience conduct acquisitions more frequently, complete their transactions more often, and tend to pay higher acquisition premiums. Further analyses suggest that acquirers led by CEOs with military backgrounds earn significantly higher announcement-period abnormal stock returns. Moreover, acquisitions made by CEOs with military experience exhibit higher short-run and long-run synergies. Furthermore, we find that the negative effect of excess cash on acquirer returns and short-run and long-run synergies are much less pronounced in acquisitions made by acquirers led by CEOs with military service experience. Overall, the evidence suggests that the value system developed in the military helps attenuate the agency costs in acquisitions and generates better acquisition decisions. Taken together, our results suggest a channel through which the military background of a CEO might affect firm value.
Number of Pages in PDF File: 51 Keywords: military service, agency costs, mergers and acquisitions JEL Classification: G10, G34, G39 working papers seriesDate posted: September 23, 2011Suggested CitationContact Information
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