Hometown Biased Acquisitions
73 Pages Posted: 22 Sep 2016 Last revised: 17 Jun 2018
Date Written: June 10, 2018
We show that CEOs exhibit a hometown bias in acquisitions. Firms are over twice as likely to acquire targets located in the states of their CEOs’ childhood homes than similar targets domiciled elsewhere. Small, private home-state deals underperform other small, private deals, and the bias is stronger when acquirer governance is lax, suggesting that CEOs acquire private home-state targets for their own benefits. In contrast, large, public home-state acquisitions are value-enhancing. CEOs create value in public home-state acquisitions by avoiding extremely poor deals and through deals with higher synergies. Thus, both agency issues and hometown advantages drive home-state acquisitions.
Keywords: hometown bias, mergers and acquisitions, home advantage, agency problem
JEL Classification: G02, G32, G34
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