Diversifying or Focused Acquisition? The Influence of CEOs Temporal Focus on Corporate Acquisition Target Choice and the Moderating Role of Corporate Governance

Nuru M. Ahmed and Jianfeng Wu
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Nuru M. Ahmed: Business school, University of International Business and Economics, Chaoyang District, Beijing, P.R. China.
Jianfeng Wu: Business school, University of International Business and Economics, Chaoyang District, Beijing, P.R. China

International Journal of Science and Business, 2021, vol. 5, issue 4, 80-104

Abstract: Why an acquiring firm chooses a target over others is a question yet not investigated well. Using a multi-dimensional temporal focus framework and upper echelon theory, we proposed that a firm’s choice for diversifying or focused acquisition is predicted by the CEO’s temporal focus. Furthermore, this link is contingent on corporate governance (compensation). The result from the analysis of 302 M&A deals from semiconductor and pharmaceutical industries revealed that CEOs with high future/present focus are more likely to make a diversifying acquisition than focus acquisition, while present-focused CEOs are more likely to make a focused acquisition over diversifying takeover. With a high stock option, future-focused CEOs will be more eager to make diversifying acquisitions, while past-focused CEOs’ likelihood of making a focused acquisition is reduced. Also, with high stock ownership, the interest of future and present-focused CEOs for diversifying takeover will reduce, while CEOs with high past focus will more tend to make a focused acquisition.

Keywords: CEO temporal focus; Acquisition target choice; Upper echelon theory; CEOs compensation; Diversifying acquisition; Focused acquisition (search for similar items in EconPapers)
Date: 2021
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