Do Target CEOs Sell Out Their Shareholders to Keep Their Job in a Merger?

Leonce L. Bargeron, Frederik Schlingemann (), René Stulz and Chad J. Zutter
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Leonce L. Bargeron: University of Pittsburgh
Chad J. Zutter: University of Pittsburgh

Working Paper Series from Ohio State University, Charles A. Dice Center for Research in Financial Economics

Abstract: CEOs have a potential conflict of interest when their company is acquired: They can bargain to be retained by the acquirer and for private benefits rather than for a higher premium to be paid to the shareholders. We investigate the determinants of target CEO retention by the acquirer and whether target CEO retention affects the premium paid by the acquirer. The probability that a CEO is retained increases with a private bidder, the performance of the target, and with the fraction of target shares held by insiders. Regardless of the bidder type, we find no evidence that the premium paid is lower when the CEO is retained by the acquirer. Strikingly, the target stock price increases more at the announcement of an acquisition by a private firm when the CEO is retained than when she is not. This result holds whether the private acquirer is a private equity firm or an operating company and for management buyouts.

JEL-codes: G30 G34 (search for similar items in EconPapers)
Date: 2009-09
New Economics Papers: this item is included in nep-bec and nep-com
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Citations: View citations in EconPapers (15)

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Working Paper: Do Target CEOs Sell Out Their Shareholders to Keep Their Job in a Merger? (2009)
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