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CEO Preferences and Acquisitions

Dirk Jenter

London School of Economics; National Bureau of Economic Research (NBER); CEPR

Katharina Lewellen

Tuck School of Business at Dartmouth

December 1, 2011

Stanford Graduate School of Business Working Paper No. 2089
Tuck School of Business Working Paper No. 2012-105

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: 44

Keywords: CEO, retirement, target takeover

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Date posted: January 7, 2012  

Suggested Citation

Jenter, Dirk and Lewellen, Katharina, CEO Preferences and Acquisitions (December 1, 2011). Stanford Graduate School of Business Working Paper No. 2089; Tuck School of Business Working Paper No. 2012-105. Available at SSRN: https://ssrn.com/abstract=1980993 or http://dx.doi.org/10.2139/ssrn.1980993

Contact Information

Dirk Jenter (Contact Author)
London School of Economics ( email )
Houghton Street
London, WC2A 2AE
United Kingdom
HOME PAGE: http://personal.lse.ac.uk/jenter/
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
CEPR ( email )
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
Katharina Lewellen
Tuck School of Business at Dartmouth ( 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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