CEOs’ Military Experience, Agency Costs and Acquisition Decisions

43 Pages Posted: 23 Sep 2011 Last revised: 25 Oct 2013

See all articles by Chen Lin

Chen Lin

The University of Hong Kong - Faculty of Business and Economics

Yue Ma

City University of Hong Kong (CityUHK) - Department of Economics & Finance

Micah S. Officer

Loyola Marymount University - Department of Finance and Computer Information Systems

Hong Zou

The University of Hong Kong - Faculty of Business and Economics

Date Written: September 23, 2011

Abstract

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 backgrounds earn significantly higher abnormal stock returns at deal announcement, and these deals exhibit higher short-run and long-run synergies. In addition, we find that the presence of military CEO attenuates the negative effect of the poor corporate governance and excess cash on acquirer returns and short-run and long-run synergies. Overall, the evidence suggests that the value system developed in the military helps lower the agency costs in acquisitions and generates better acquisition outcomes. Taken together, our results suggest a channel through which the military background of a CEO might affect firm value.

Keywords: military service, agency costs, mergers and acquisitions

JEL Classification: G10, G34, G39

Suggested Citation

Lin, Chen and Ma, Yue and Officer, Micah S. and Zou, Hong, CEOs’ Military Experience, Agency Costs and Acquisition Decisions (September 23, 2011). Available at SSRN: https://ssrn.com/abstract=1932623 or http://dx.doi.org/10.2139/ssrn.1932623

Chen Lin

The University of Hong Kong - Faculty of Business and Economics ( email )

Pokfulam Road
Hong Kong
China

Yue Ma

City University of Hong Kong (CityUHK) - Department of Economics & Finance ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong

HOME PAGE: http://www.cb.cityu.edu.hk/staff/yuema24

Micah S. Officer (Contact Author)

Loyola Marymount University - Department of Finance and Computer Information Systems ( email )

Los Angeles, CA 90045
United States

Hong Zou

The University of Hong Kong - Faculty of Business and Economics ( email )

Hong Kong

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