CEO Preferences and Acquisitions

By Dirk Jenter, Katharina Lewellen. Social Science Research Network, 2014

161 citations recorded by the source corpus.

This paper explores the impact of target CEOs’ retirement preferences on the incidence, the pricing, and the outcomes of takeover bids. Mergers frequently force target CEOs to retire early, and CEOs’ private merger costs are the forgone benefits of staying employed until the planned retirement date. Using retirement age as an instrument for CEOs’ private merger costs, we find strong evidence that target CEO preferences affect merger patterns. The likelihood of receiving a takeover bid increases sharply when target CEOs reach age 65. The probability of a bid is close to 4% per year for target CEOs below age 65 but increases to 6% for the retirement-age group, a 50% increase in the odds of receiving a bid. This increase in takeover activity appears discretely at the age-65 threshold, with no gradual increase as CEOs approach retirement age. Moreover, observed takeover premiums and target announcement returns are significantly lower when target CEOs are older than 65, reinforcing the conclusion that retirement-age CEOs are more willing to accept takeover offers. These results suggest that the preferences of target CEOs have first-order effects on both bidder and target behavior.

Subfields: Accounting, Economics and Econometrics, Strategy and Management

View Paper: https://www.semanticscholar.org/paper/9a64b023234164823dadcd99b6c469c729b16d41

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Citations in the corpus

The Pre-Deal Phase of Mergers and Acquisitions: A Review and Research Agenda (2020, background): “Target CEOs, in contrast, have been studied to a much more limited extent (Jenter & Lewellen, 2015).”
Playing It Safe? Managerial Preferences, Risk, and Agency Conflicts (2016, background): “Related work shows that career concerns affect project choices and strategic alliances in the motion picture industry (Ravid and Basuroy, 2004; Palia, Ravid, and Reisel, 2008) and the willingness of acquisition targets’ CEOs to agree to a takeover (Jenter and Lewellen, 2015).”