Abstract

http://ssrn.com/abstract=1969619
 
 

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CEO Preferences and Acquisitions


Dirk Jenter


Stanford Graduate School of Business; National Bureau of Economic Research (NBER)

Katharina Lewellen


Dartmouth College - Tuck School of Business

December 2011

Rock Center for Corporate Governance at Stanford University Working Paper No. 105

Abstract:     
This paper explores the impact of target CEOs’ retirement preferences on the incidence, the pricing, and the outcomes of takeover bids. Mergers frequently force target CEOs to retire early, and CEOs’ private merger costs are the forgone benefits of staying employed until the planned retirement date. Using retirement age as an instrument for CEOs’ private merger costs, we find strong evidence that target CEO preferences affect merger patterns. The likelihood of receiving a takeover bid increases sharply when target CEOs reach age 65. The probability of a bid is close to 4% per year for target CEOs below age 65 but increases to 6% for the retirement-age group, a 50% increase in the odds of receiving a bid. This increase in takeover activity appears discretely at the age-65 threshold, with no gradual increase as CEOs approach retirement age. Moreover, observed takeover premiums and target announcement returns are significantly lower when target CEOs are older than 65, reinforcing the conclusion that retirement-age CEOs are more willing to accept takeover offers. These results suggest that the preferences of target CEOs have first-order effects on both bidder and target behavior.

Number of Pages in PDF File: 43

Keywords: takeover bids, CEO retirement preferences and acquisitions, CEO early retirement on merger

JEL Classification: G32, G34, G35

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Date posted: December 8, 2011  

Suggested Citation

Jenter, Dirk and Lewellen, Katharina, CEO Preferences and Acquisitions (December 2011). Rock Center for Corporate Governance at Stanford University Working Paper No. 105. Available at SSRN: http://ssrn.com/abstract=1969619 or http://dx.doi.org/10.2139/ssrn.1969619

Contact Information

Dirk Jenter (Contact Author)
Stanford Graduate School of Business ( email )
518 Memorial Way
Stanford, CA 94305-5015
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Katharina Lewellen
Dartmouth College - Tuck School of Business ( email )
Hanover, NH 03755
United States
603-646-8247 (Phone)
HOME PAGE: http://oracle-www.dartmouth.edu/dart/groucho/tuck_faculty_and_research.faculty_profile?p_id=QE2X25
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