CEO Preferences and Acquisitions
London School of Economics; Stanford Graduate School of Business; National Bureau of Economic Research (NBER)
Tuck School of Business at Dartmouth
June 5, 2014
Rock Center for Corporate Governance at Stanford University Working Paper No. 105
Journal of Finance, Forthcoming
This paper explores the impact of target CEOs’ retirement preferences on takeovers. Using retirement age as proxy for CEOs’ private merger costs, we find strong evidence that target CEOs’ preferences affect merger activity. The likelihood of receiving a successful takeover bid is sharply higher when target CEOs are close to age 65.
Takeover premiums and target announcement returns are similar for retirement-age and younger CEOs, implying that retirement-age CEOs increase firm sales without sacrificing premiums. Better corporate governance is associated with more acquisitions of firms led by young CEOs, and with a smaller increase in deals at retirement age.
Number of Pages in PDF File: 48
Keywords: takeover bids, CEO retirement preferences and acquisitions, CEO early retirement on merger
JEL Classification: G32, G34, G35
Date posted: December 8, 2011 ; Last revised: June 25, 2014
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