Working Paper: NBER ID: w14724
Authors: Leonce L. Bargeron; Frederik P. Schlingemann; Ren M. Stulz; Chad J. Zutter
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.
Keywords: CEO retention; mergers; acquisitions; shareholder value; private equity
JEL Codes: G30; G34
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| CEO retention in private equity acquisitions (G34) | likelihood of CEO retention (M51) |
| CEO retention (M12) | acquisition premium in private bidders (D44) |
| CEO retention (M12) | acquisition premium (G34) |
| CEO retention (M12) | target stock prices upon acquisition announcement (G34) |
| insider ownership (G34) | probability of CEO retention (M51) |
| target performance (L21) | probability of CEO retention (M51) |
| presence of private bidders (D44) | probability of CEO retention (M51) |