TAKEOVERS, MANAGEMENT REPLACEMENT, AND POST‐ACQUISITION OPERATING PERFORMANCE: SOME EVIDENCE FROM THE 1980s

James D. Parrino and Robert S. Harris

Journal of Applied Corporate Finance, 1999, vol. 11, issue 4, 88-96

Abstract: In their study of 197 U.S. takeovers from the 1980s, the authors find that the most important determinant of superior post‐merger operating performance is whether the target company's management is replaced or retained. When the target CEO is replaced, the post‐merger firm's annual cash flow returns outpace industry standards by 2 to 3%. In contrast, when target top management remains after the merger, operating returns do not exceed industry averages. The effect of management replacement is even more pronounced in those cases where the industry is consolidating. But, for those takeovers that are followed by significant investment (and thus presumably in growth industries), management replacement does not make a significant difference in post‐acquisition performance.

Date: 1999
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