How do CEOs matter? The effect of industry expertise on acquisition returns

Cláudia Custódio; Daniel Metzger

doi:10.1093/rfs/hht032

How do CEOs matter? The effect of industry expertise on acquisition returns

Cláudia Custódio, Daniel Metzger

Finance

Research output: Contribution to journal › Article › peer-review

134 Scopus citations

Abstract

This paper shows how chief executive officer (CEO) characteristics affect the performance of acquirers in diversifying takeovers. When the acquirer's CEO has previous experience in the target industry, the acquirer's abnormal announcement returns are between 1.2 and 2.0 percentage points larger than those generated by a CEO who is new to the target industry. This outcome is driven by the industry-expert CEO's ability to capture a larger fraction of the merger surplus. Industry-expert CEOs typically negotiate better deals and pay a lower premium for the target. This effect is stronger when information asymmetry is high and in bilateral negotiations compared to auctions. We also find that industry-expert CEOs on average select lower surplus deals. This evidence is consistent with industry-expert CEOs having superior negotiation skills.

Original language	English (US)
Pages (from-to)	2007-2047
Number of pages	41
Journal	Review of Financial Studies
Volume	26
Issue number	8
DOIs	https://doi.org/10.1093/rfs/hht032
State	Published - Aug 1 2013

ASJC Scopus subject areas

Accounting
Finance
Economics and Econometrics

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How do CEOs matter? The effect of industry expertise on acquisition returns

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