Abstract

We shed new light on two questions. The first question is why some target CEOs are hired by the acquirer firms while others would depart after the acquisitions, more exactly, what characteristics of the target firms or target CEOs themselves would make them stay in or depart from the acquirer firms. The second question is about the influence of the hired target CEOs in the post-acquisition performance of the acquirer firms.
To answer the first question, we use a logistic regression to test the variables that might influence the target CEOs’ employment in the acquirer firms. We find that target CEOs are more likely to be hired by acquirer firms in the following cases: (1) the target firm has better pre-acquisition performance (2) the target CEO has stronger control over the target firm (3) the target CEO has more work experience (4) the method of payment is stock.
For the second question, we estimate a multivariate OLS regression with two dummy variables reflecting how long target CEOs work in the acquirer firm after the acquisitions, together with other pre-acquisition target/acquirer firm performance variables. Two measures of acquirer firms’ performance are also used in the model: a market-based measure (buy & hold market-adjusted return) and an accounting-based measure (industry adjusted return on asset). Our findings are as following: (1) Pre-acquisition target and acquirer firms’ performance (especially the target firms’ performance) have more significant and positive influence on the second-year post-acquisition performance of the acquirer firms. (2) The hired target CEOs will negatively influence the first-year post-acquisition performance of the acquirer firms. (3) The target CEOs hired by acquirer firms for at least two years will significantly improve the second-year post-acquisition performance of the acquirer firms and this positive effect might continue to the third year.