CEO Preferences and Acquisitions

This paper explores the impact of target CEOs ’ retirement preferences on takeovers. Mergers frequently force target CEOs to retire early, and CEOs ’ private merger costs are the forgone benefits of staying employed. Using retirement age as a proxy for CEOs ’ private merger costs, we find strong evidence that target CEO preferences affect merger patterns. The likelihood of receiving a successful takeover bid is sharply higher when target CEOs are close to age 65. Takeover activity is elevated in a narrow window around age 65, with only a small gradual increase as CEOs approach retirement age. Takeover premiums and target announcement returns are similar for retirement-age and younger CEOs, implying that retirement-age CEOs are able to increase firm sales without sacrificing premiums. Better corporate governance is associated with more acquisitions of firms led by young CEOs, and with a smaller increase in deals when CEOs reach retirement age.