Is Age Just a Number? The Effect of CEO Characteristics on Firm Acquisition Probability and Premiums

Abstract

The mergers and acquisitions market represents a highly lucrative segment of capital markets and is driven by a variety of factors. This empirical study outlines a theoretical framework regarding CEO characteristics and preferences and employs a regression analysis to estimate the relationship between CEO age and tenure and sell-side firm acquisition behavior. Ultimately, the results find significant relationships between CEO age and tenure and both their firm’s likelihood of being acquired and the takeover premiums received upon completion of an acquisition. Specifically, CEO age is positively related to acquisition probability until a CEO reaches his or her mid-60s, at which point it is has a negative relationship. CEO tenure is found to be negatively related to a firm’s likelihood of being acquired. Of the firms that are targets of completed acquisitions, there exists a negative correlation between CEO age and takeover premiums and a positive correlation between CEO tenure and takeover premiums.