CEO Preferences and Acquisitions

Dirk Jenter and Katharina Lewellen

No 17663, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: 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.

JEL-codes: D22 D23 G3 G30 G34 (search for similar items in EconPapers)
Date: 2011-12
Note: CF
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

Published as “CEO Preferences and Acquisitions” (2013) with Katharina Lewellen. Journal of Finance, Volume 70, Issue 6, December 2015, Pages 2813–2852

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Related works:
Journal Article: CEO Preferences and Acquisitions (2015)
Working Paper: CEO Preferences and Acquisitions (2011)
Working Paper: CEO Preferences and Acquisitions (2011)
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