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Do Target CEOs Sell Out Their Shareholders to Keep Their Job in a Merger?

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Author Info
Leonce L. Bargeron
Frederik P. Schlingemann
René 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.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 14724.

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Date of creation: Feb 2009
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Handle: RePEc:nbr:nberwo:14724

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Find related papers by JEL classification:
G30 - Financial Economics - - Corporate Finance and Governance - - - General
G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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References listed on IDEAS
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  1. Schwert, G. William, 1996. "Markup pricing in mergers and acquisitions," Journal of Financial Economics, Elsevier, vol. 41(2), pages 153-192, June. [Downloadable!] (restricted)
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  2. Brown, Stephen J. & Warner, Jerold B., 1985. "Using daily stock returns : The case of event studies," Journal of Financial Economics, Elsevier, vol. 14(1), pages 3-31, March. [Downloadable!] (restricted)
  3. DeAngelo, Harry & DeAngelo, Linda & Rice, Edward M, 1984. "Going Private: Minority Freezeouts and Stockholder Wealth," Journal of Law & Economics, University of Chicago Press, vol. 27(2), pages 367-401, October.
  4. Agrawal, Anup & Walkling, Ralph A, 1994. " Executive Careers and Compensation Surrounding Takeover Bids," Journal of Finance, American Finance Association, vol. 49(3), pages 985-1014, July. [Downloadable!] (restricted)
  5. Jay C. Hartzell, 2004. "What's In It for Me? CEOs Whose Firms Are Acquired," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 17(1), pages 37-61. [Downloadable!] (restricted)
  6. Schlingemann, Frederik P. & Stulz, Rene M. & Walkling, Ralph A., 2002. "Divestitures and the liquidity of the market for corporate assets," Journal of Financial Economics, Elsevier, vol. 64(1), pages 117-144, April. [Downloadable!] (restricted)
  7. Moeller, Thomas, 2005. "Let's make a deal! How shareholder control impacts merger payoffs," Journal of Financial Economics, Elsevier, vol. 76(1), pages 167-190, April. [Downloadable!] (restricted)
  8. Bargeron, Leonce L. & Schlingemann, Frederik P. & Stulz, René M. & Zutter, Chad J., 2008. "Why do private acquirers pay so little compared to public acquirers?," Journal of Financial Economics, Elsevier, vol. 89(3), pages 375-390, September. [Downloadable!] (restricted)
  9. McConnell, John J. & Servaes, Henri, 1990. "Additional evidence on equity ownership and corporate value," Journal of Financial Economics, Elsevier, vol. 27(2), pages 595-612, October. [Downloadable!] (restricted)
  10. Stulz, ReneM., 1988. "Managerial control of voting rights : Financing policies and the market for corporate control," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 25-54, January. [Downloadable!] (restricted)
  11. Amihud, Yakov, 2002. "Illiquidity and stock returns: cross-section and time-series effects," Journal of Financial Markets, Elsevier, vol. 5(1), pages 31-56, January. [Downloadable!] (restricted)
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