Industry Experience of Board CEO, and Acquisition Performance
Review of Pacific Basin Financial Markets and Policies, 23(3) 205022, 2020
57 Pages Posted: 29 May 2019 Last revised: 3 Aug 2021
Date Written: April 26, 2019
This study examines the collective impact of expert boards and CEOs on acquisition performance, providing new insight into the CEO-board relationship. Acquiring firms with expert boards earn an additional 1.16 percentage points when their CEOs are new to the target industry compared to firms with “non-experienced” boards. However, compared to firms with expert boards alone, acquiring firms with expert boards earn an additional 3.91 percentage points when their CEOs are also experts in the target industry. Robust to endogeneity checks, our evidence supports the vigilant-advisor, resource provisioning, and “shared experience” hypotheses that take three distinct views of the CEO-board relationship. Generalist CEOs and public targets intensify the shared experience effect, whereas less powerful CEOs and private targets intensify the resource provisioning effect. Finally, experienced directors improve the quality of acquisitions by assisting acquirers to avoid large losses, identify targets with higher synergies, and negotiate better deals.
Keywords: M&A, CEO-Board Relationship, CEOs, Outside Directors, Industry Experience
JEL Classification: G34, G14
Suggested Citation: Suggested Citation