Do Acquirers Benefit from Retaining Target CEOs?
53 Pages Posted: 10 Feb 2016
Date Written: February 8, 2016
Acquirers do not benefit from hiring the CEOs of firms they buy, either in terms of merger announcement returns or long-run operating performance. This is especially true when the retained CEOs exhibit inferior quality (as proxied by target firm industrial efficiency or the target CEO’s educational aptitude, pay slice, or outside directorships). We find no evidence that our results are due to hard bargaining by target managers: premiums paid in M&A deals appear unrelated to the decision to hire the target CEO. These findings withstand several econometric methods we use to account for potential endogeneity, selection, and unobserved heterogeneity.
Keywords: Acquisitions, CEO retention, Managerial quality
JEL Classification: G30, G34, K22, M51
Suggested Citation: Suggested Citation