Do Envious CEOs Cause Merger Waves?

48 Pages Posted: 15 Mar 2005 Last revised: 20 Jun 2008

See all articles by Anjan V. Thakor

Anjan V. Thakor

Washington University, Saint Louis - John M. Olin School of Business; European Corporate Governance Institute (ECGI)

Anand M. Goel

Stevens Institute of Technology

Multiple version iconThere are 2 versions of this paper

Date Written: May 2008


We develop a model in which CEOs envy each other based on their compensation. When CEO compensation is increasing in the firm's market value and size, we show that envy can cause merger waves even when the shock that precipitated the first merger in the wave is purely idiosyncratic. The analysis produces numerous predictions, some of which are as follows. First, the earlier acquisitions in a merger wave display higher synergies than the later acquisitions in the wave, so bidder returns will be higher for the earlier acquisitions. Second, earlier acquisitions in a merger wave involve smaller targets than later acquisitions. Third, the gain in compensation for the top management team of the acquiring firm should be higher for earlier acquisitions than for later acquisitions. Fourth, more envious CEOs are more likely to engage in acquisitions and pay higher premia. Fifth, an envy-generated merger wave is more likely in a bull stock market than in a bear market even when there is no mispricing that creates opportunities to time the market, so the quality of bull-market acquisitions is lower than that of bear-market acquisitions. Finally, controlling for the dispersion in firm values, the bull-market-versus-bear-market effect largely disappears. We test the first three predictions and find strong empirical support.

Keywords: Merger Waves, CEOs, Envy

JEL Classification: G3

Suggested Citation

Thakor, Anjan V. and Goel, Anand Mohan, Do Envious CEOs Cause Merger Waves? (May 2008). Review of Financial Studies, Forthcoming. Available at SSRN:

Anjan V. Thakor

Washington University, Saint Louis - John M. Olin School of Business ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

European Corporate Governance Institute (ECGI) ( email )

B-1050 Brussels

Anand Mohan Goel (Contact Author)

Stevens Institute of Technology ( email )

Hoboken, NJ 07030
United States


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