The Young and the Restless: A Study of Age and Acquisition Propensity of CEOs of U.K. Firms
Journal of Business Finance and Accounting, Forthcoming
Posted: 13 Jul 2016
Date Written: July 11, 2016
Using a large sample of CEOs of U.K. firms, we show that CEO age is a key determinant of acquisition activity. We find that younger CEOs are more likely to acquire another firm and spend more on large capital expenditures. We argue that while younger CEOs of both U.K. and U.S. firms undertake more acquisitions than their older peers, their motivations for acquisitions might differ. We find that the stock market perceives acquisitions by younger CEOs to be of a higher quality. Following previous studies, we use CEO tenure as a proxy for reputation, and find that large acquisitions enhance CEO reputation, especially for younger CEOs. In contrast to the previous findings for CEOs of U.S. firms, we determine that the compensation of CEOs in the U.K. does not increase after acquisitions. This absence of a compensation incentive for CEOs of U.K. firms is consistent with the idea that the U.K. compensation structure is more restrictive and has a smaller equity-based component. Our evidence is also inconsistent with an overconfidence effect. Overall, our results provide consistent evidence of executive signaling by younger CEOs of U.K. firms eager to distinguish themselves.
Keywords: CEO, age, merger, acquisition, signaling, compensation
JEL Classification: G3, G34
Suggested Citation: Suggested Citation