Founder CEOs and Acquirer Returns: Evidence from IPO Firms

39 Pages Posted: 4 Feb 2016 Last revised: 26 May 2016

See all articles by Joon Mahn Lee

Joon Mahn Lee

Purdue University - Krannert School of Management

Jongsoo Kim

Hong Kong Baptist University

Jeffrey Reuer

University of Colorado at Boulder

Date Written: May 24, 2016

Abstract

Drawing from the literature on entrepreneurial overconfidence and M&As, we argue that founder CEO-managed firms perform worse than professional CEO-managed firms when they participate in M&A transactions. We test our predictions using a sample of acquisitions by newly listed US public firms from 2000 to 2012. Consistent with our arguments, we find that acquisitions led by founder CEOs experience lower abnormal returns compared with acquisitions led by professional CEOs. We also find that the negative relationship between founder CEOs and abnormal returns is amplified by CEOs’ M&A experience. We rule out alternative interpretations, including private benefits of control and founder CEOs’ potentially inferior M&A skills. The results are consistent across various robustness checks that control for potential selection issues and other endogeneity concerns.

Keywords: Founder CEO, Overconfidence, M&A, Corporate Governance, IPO firms

JEL Classification: G34, M13, M50

Suggested Citation

Lee, Joon Mahn and Kim, Jongsoo and Reuer, Jeffrey, Founder CEOs and Acquirer Returns: Evidence from IPO Firms (May 24, 2016). Available at SSRN: https://ssrn.com/abstract=2727314 or http://dx.doi.org/10.2139/ssrn.2727314

Joon Mahn Lee (Contact Author)

Purdue University - Krannert School of Management ( email )

1310 Krannert Building
West Lafayette, IN 47907-1310
United States

Jongsoo Kim

Hong Kong Baptist University ( email )

Kowloon Tong
HKBU road
Hong Kong, 00000
Hong Kong
85255615891 (Phone)

Jeffrey Reuer

University of Colorado at Boulder ( email )

1070 Edinboro Drive
Boulder, CO 80309
United States

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