Industry experiences of board, CEO, and acquisition performance

Debarati Bhattacharya; Ya Yun Kao; Wei Hsien Li

doi:10.1142/S0219091520500228

Industry experiences of board, CEO, and acquisition performance

Debarati Bhattacharya, Ya Yun Kao, Wei Hsien Li

Department of Finance

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

3 Scopus citations

Abstract

This study examines the collective impact of expert boards and CEOs on acquisition performance, providing new insight into the CEO-board relationship. Acquiring firms with expert boards earns an additional 1.16 percentage points (3.91 percentage points) when the CEOs are new to the target industry (also experts) compared to the firms with \nonexperienced" boards (expert boards alone). Robust to endogeneity checks, our evidence supports the \vigilant-advisor", \resource-provisioning", and \shared-experience" hypotheses that take three distinct views of the CEO-board relationship. Generalist CEOs and public targets intensify the shared-experience effect, whereas less powerful CEOs and private targets intensify the resource-provisioning effect. Experienced directors improve the quality of acquisitions by assisting acquirers to avoid large losses, identify targets with higher synergies, and negotiate better deals.

Original language	English
Article number	2050022
Journal	Review of Pacific Basin Financial Markets and Policies
Volume	23
Issue number	3
DOIs	https://doi.org/10.1142/S0219091520500228
State	Published - 1 Sep 2020

Keywords

CEO-board relationship
CEOs
Industry experience
M&A
Outside directors

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10.1142/S0219091520500228

Cite this

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AU - Kao, Ya Yun

AU - Li, Wei Hsien

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PY - 2020/9/1

Y1 - 2020/9/1

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AB - This study examines the collective impact of expert boards and CEOs on acquisition performance, providing new insight into the CEO-board relationship. Acquiring firms with expert boards earns an additional 1.16 percentage points (3.91 percentage points) when the CEOs are new to the target industry (also experts) compared to the firms with \nonexperienced" boards (expert boards alone). Robust to endogeneity checks, our evidence supports the \vigilant-advisor", \resource-provisioning", and \shared-experience" hypotheses that take three distinct views of the CEO-board relationship. Generalist CEOs and public targets intensify the shared-experience effect, whereas less powerful CEOs and private targets intensify the resource-provisioning effect. Experienced directors improve the quality of acquisitions by assisting acquirers to avoid large losses, identify targets with higher synergies, and negotiate better deals.

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Industry experiences of board, CEO, and acquisition performance

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Keywords

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