Abstract

I examine if firm performance following acquisitions is affected by CEO age. Younger CEOs have larger career concerns compared to CEOs closer to retirement which should better align their incentives with shareholders. Older CEOs closer to retirement are more likely to manipulate firms and make acquisitions that only benefit themselves. On the other hand, younger CEOs have less experience compared to older CEOs. Using a large sample of 1062 acquiring firms and a subsample of 480 public targets, I investigate the post-acquisition firm performance of acquiring firms over the CEOs’ aging process. The empirical results show that the firms operated by younger CEOs (less than 50 years old) perform worse than the firms managed by older CEOs after the acquisitions, both in the short-term and long-term. Although younger CEOs are faced with less agency and horizon problem, and they have more career concerns, these factors do not contribute to better performance. An examination of target characteristics shows that younger CEOs acquire high growth targets. Cross-sectional tests show that the poor performance is related to CEO overconfidence and riskier targets acquired by younger CEOs.