CEO network centrality and merger performance

Document Type

Article

Source of Publication

Journal of Financial Economics

Publication Date

1-1-2015

Abstract

© 2015 Elsevier B.V. We study the effects on M&A outcomes of CEO network centrality, which measures the extent and strength of a CEO[U+05F3]s personal connections. High network centrality can allow CEOs to efficiently gather and control private information, facilitating value-creating acquisition decisions. We show, however, that M&A deals initiated by high-centrality CEOs, in addition to being more frequent, carry greater value losses to both the acquirer and the combined entity than deals initiated by low-centrality CEOs. We also document that high-centrality CEOs are capable of avoiding the discipline of the markets for corporate control and the executive labor market, and that the mitigating effect of internal governance on CEO actions is limited. Our evidence suggests that corporate decisions can be influenced by a CEO[U+05F3]s position in the social hierarchy, with high-centrality CEOs using their power and influence to increase entrenchment and reap private benefits.

ISSN

0304-405X

Publisher

Elsevier

Volume

116

Issue

2

First Page

349

Last Page

382

Disciplines

Business

Keywords

Corporate control market, Corporate governance, Managerial labor market, Mergers and acquisitions, Network centrality

Scopus ID

84928828283

Indexed in Scopus

yes

Open Access

no

Link to Full Text

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