CEOs’ Military Experience and Acquisition Decisions
Chinese University of Hong Kong (CUHK) - Department of Finance
City University of Hong Kong (CityUHK) - Department of Economics & Finance
Micah S. Officer
Loyola Marymount University - Department of Finance and Computer Information Systems
City University of Hong Kong
September 23, 2011
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, G39working papers series
Date posted: September 23, 2011
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