Do Acquirers Benefit from Retaining Target CEOs?

53 Pages Posted: 10 Feb 2016

See all articles by Eliezer M. Fich

Eliezer M. Fich

Drexel University - Department of Finance

Micah S. Officer

Loyola Marymount University - Department of Finance

Anh L. Tran

Cass Business School, City University London

Date Written: February 8, 2016

Abstract

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

Fich, Eliezer M. and Officer, Micah S. and Tran, Anh L., Do Acquirers Benefit from Retaining Target CEOs? (February 8, 2016). Available at SSRN: https://ssrn.com/abstract=2729881 or http://dx.doi.org/10.2139/ssrn.2729881

Eliezer M. Fich

Drexel University - Department of Finance ( email )

LeBow College of Business
3220 Market Street – 11th Floor
Philadelphia, PA 19104
(215) 895-2304 (Phone)

Micah S. Officer (Contact Author)

Loyola Marymount University - Department of Finance ( email )

Los Angeles, CA 90045
United States

Anh L. Tran

Cass Business School, City University London ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom
+44-207-040-5109 (Phone)
+44-207-040-8881 (Fax)

HOME PAGE: http://https://www.cass.city.ac.uk/faculties-and-research/experts/anh-tran

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