CEO Turnover after Acquisitions: Are Bad Bidders Fired?

Kenneth Lehn

University of Pittsburgh – Finance Group

Mengxin Zhao

University of Alberta – School of Business; University of Alberta – Department of Finance and Statistical Analysis; University of Alberta

2006

Journal of Finance, August 2006
AFA 2004 San Diego Meetings

Abstract:

We examine the relation between bidder returns and the probability of CEO turnover in acquiring firms. Using a sample of 714 acquisitions during 1990 to 1998, we find that 47% of CEOs of acquiring firms are replaced within five years, including 27% by internal governance, 16% by takeovers, and 4% by bankruptcy. A significant inverse relation exists between bidder returns and the likelihood of CEO turnover. This relation is not associated with governance structure. It also is not significantly different in stock versus cash acquisitions, which appears to be inconsistent with Shleifer and Vishny’s theory of stock market driven acquisitions.

CEO Turnover after Acquisitions- Are Bad Bidders Fired?

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