Legal Expertise in Leadership: How Lawyer CEOs Create Value in Mergers and Acquisitions

Abstract

This paper investigates whether CEOs with legal expertise (hereafter, 'lawyer CEOs') influence acquirer shareholder wealth in mergers and acquisitions (M&As). Using U.S. firms from 1991 to 2023, we find that acquiring firms with lawyer CEOs are more likely to undertake acquisitions and achieve higher deal completion rates. Acquirers led by lawyer CEOs also experience higher cumulative abnormal returns, particularly in environments characterized by high information asymmetry, weak governance, and adverse legal conditions. Notably, CEOs with legal expertise mitigate valuation uncertainty and information asymmetry in stock-financed deals, reducing the negative effects of stock payment on acquirer announcement returns and deal synergies, particularly for larger acquirers, firms with low book-to-market ratios, and those with limited access to legal advisors.

Keywords: CEO legal expertise, mergers and acquisitions, information asymmetry, corporate governance, shareholder value

JEL Classification: G14, G32, G34, M12