Abstract

http://ssrn.com/abstract=2185574
 


 



Does Target CEO Retention in Acquisitions Involving Private Equity Acquirers Harm Target Shareholders?


Leonce Bargeron


University of Pittsburgh - Finance Group

Frederik P. Schlingemann


University of Pittsburgh - Finance Group; Rotterdam School of Management (Erasmus University)

Chad J. Zutter


University of Pittsburgh - Finance Group

Rene M. Stulz


Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

May 24, 2013

Fisher College of Business Working Paper No. 2012-03-026
Charles A. Dice Center Working Paper No. 2012-26

Abstract:     
While there is widespread concern that target CEO retention by a private equity acquirer can result in a lower premium for target shareholders because of the potential conflict of interest of the CEO, it is also possible that target shareholders could benefit from CEO retention because it can increase the performance of the acquired firm and, consequently, increase the premium that the private equity firm is willing to pay. Our evidence does not support the view that CEO retention harms shareholders in acquisitions involving private equity firms. In fact, we show that better performing target CEOs are more likely to be retained in acquisitions by private equity firms and that target shareholders gain an additional 7% to 23% of pre-acquisition firm value compared to when the CEO is not retained. Further, we find no evidence that the target’s value is artificially depressed ahead of a private equity acquisition where the CEO is retained.

Number of Pages in PDF File: 49

Keywords: CEO retention, private equity acquisitions, mergers, acquisition premiums

JEL Classification: G30, G34

working papers series


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Date posted: December 6, 2012 ; Last revised: May 29, 2013

Suggested Citation

Bargeron, Leonce and Schlingemann, Frederik P. and Zutter, Chad J. and Stulz, Rene M., Does Target CEO Retention in Acquisitions Involving Private Equity Acquirers Harm Target Shareholders? (May 24, 2013). Fisher College of Business Working Paper No. 2012-03-026. Available at SSRN: http://ssrn.com/abstract=2185574 or http://dx.doi.org/10.2139/ssrn.2185574

Contact Information

Leonce Bargeron
University of Pittsburgh - Finance Group ( email )
372 Mervis Hall
Pittsburgh, PA 15260
United States
Frederik Paul Schlingemann
University of Pittsburgh - Finance Group ( email )
372 Mervis Hall
Pittsburgh, PA 15260
United States
(412) 648 1847 (Phone)
(412) 648 1693 (Fax)
Rotterdam School of Management (Erasmus University) ( email )
P.O. Box 1738
Room T08-21
3000 DR Rotterdam, 3000 DR
Netherlands
Chad J. Zutter
University of Pittsburgh - Finance Group ( email )
352 Mervis Hall, Katz GSOB
University of Pittsburgh
Pittsburgh, PA 15260
United States
412-648-2159 (Phone)
412-648-1693 (Fax)
HOME PAGE: http://www.pitt.edu/~czutter/
Rene M. Stulz (Contact Author)
Ohio State University (OSU) - Department of Finance ( email )
2100 Neil Avenue
Columbus, OH 43210-1144
United States
HOME PAGE: http://www.cob.ohio-state.edu/fin/faculty/stulz

National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
European Corporate Governance Institute (ECGI)
c/o ECARES ULB CP 114
B-1050 Brussels
Belgium
Feedback to SSRN


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