Ready, set, go: CEO’S early tenure acquisitions & post-deal performance

New CEOs often pursue acquisitions early in their tenures; however, not all early deals lead to success. Integrating knowledge-based view and upper echelon’s theory, we examine how the timing of acquisitions in a new CEO’s early tenure affects post-deal performance. We theorize an inverted U-shaped relationship where waiting allows new CEOs to gain knowledge to improve post-acquisition performance. However, waiting too long causes post-deal performance declines due to knowledge stagnation and external pressures, prompting CEOs to undertake riskier acquisitions. We theorize that CEOs’ knowledge characteristics — from inside/outside origin, target industry, and prior acquisition — shapes this relationship. Using 2SLS analytical techniques, we test our predictions on data from 474 acquisitions initiated by new CEOs at U.S. public firms over a period of 15 years. We find that new CEO early tenure is curvilinearly related to post-deal performance and that CEOs’ prior firm and target industry knowledge moderates this relationship.