The effect of target managerial ownership on the choice of acquisition financing and CEO job retention

Saeyoung Chang (), Eric Mais () and Michael Sullivan ()

Review of Quantitative Finance and Accounting, 2013, vol. 40, issue 3, 423-442

Abstract: In this paper we report on our investigation into whether the level of target managerial ownership has an effect on acquisition financing choice and target CEO job retention. We find that cash is more likely used to finance acquisitions when target management ownership levels are high. This result is consistent with a reduced monitoring hypothesis, where bidding firm managers seek to avoid the formation of a large block holder that may become an active monitor. We also find evidence specific only to stock deals that the probability of target CEO job retention increases with the level of target managerial ownership. In these cases, it appears the potential benefits associated with retaining certain target managers outweighs any negative consequence associated with creating a new monitoring block. Copyright Springer Science+Business Media, LLC 2013

Keywords: Takeovers; Managerial ownership; Acquisition financing; CEO job retention; G32; G34 (search for similar items in EconPapers)
Date: 2013
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DOI: 10.1007/s11156-012-0280-5

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