CEO Preferences and Acquisitions / Dirk Jenter, Katharina Lewellen.

Format:

Book

Author/Creator:

Jenter, Dirk.

Contributor:

National Bureau of Economic Research.

Lewellen, Katharina.

Series:

Working Paper Series (National Bureau of Economic Research) no. w17663.

NBER working paper series no. w17663

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2011.

Summary:

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.

Notes:

Print version record

December 2011.