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CEO Preferences and Acquisitions

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  • Jenter, Dirk

    (Stanford University)

  • Lewellen, Katharina

    (Dartmouth College)

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.

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Bibliographic Info

Paper provided by Stanford University, Graduate School of Business in its series Research Papers with number 2089.

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Date of creation: Dec 2011
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Handle: RePEc:ecl:stabus:2089

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Cited by:
  1. Bebchuk, Lucian & Cohen, Alma & Wang, Charles C.Y., 2014. "Golden Parachutes and the Wealth of Shareholders," Journal of Corporate Finance, Elsevier, vol. 25(C), pages 140-154.
  2. Kathy Fogel & Liping Ma & Randall Morck, 2014. "Powerful Independent Directors," NBER Working Papers 19809, National Bureau of Economic Research, Inc.
  3. Ronald W. Anderson & Maria Cecilia Bustamante & St├ęphane Guibaud, 2012. "Agency, firm growth, and managerial turnover," LSE Research Online Documents on Economics 43144, London School of Economics and Political Science, LSE Library.
  4. Ronald W. Anderson & M. Cecilia Bustamante & St├ęphane Guibaud, 2012. "Agency, Firm Growth, and Managerial Turnover," FMG Discussion Papers dp711, Financial Markets Group.

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