Home Sweet Home: CEOs Acquiring Firms in their Birth Countries

Abstract

We find that foreign-born CEOs are more inclined than domestic ones to acquire across borders, and that this inclination is explained by their preference for targets in their birth country. This preference is motivated by their information advantage in their birth country and by these CEOs’ desire to give back to the birth country. CEOs’ desire to benefit the birth country also influences target location, increasing the likelihood of a target in countries that colonized the CEO birth country. The motives that drive acquisitions in the acquirer CEOs’ birth country measurably affect the returns of acquirers’ shareholders, target premium, and acquisition synergy. Both acquirers’ returns and synergy but not target premium are abnormally positive when the motive for the acquisition is a CEO’s information advantage in the birth country. Targets premiums but not acquirers’ returns and synergy are abnormally positive when the motive for the acquisition is the desire to give back to the CEO’s birth country.

Keywords: Mergers and Acquisitions, Home Bias, Information Asymmetry, CEO Birth Country

JEL Classification: G14, G34, M41