Target CEO turnover and acquiring shareholders' returns in the Fourth M&A Wave in the UK

This research provides an up-to-date perspective on the impact of the fourth M&A wave in the UK, on the target CEOs and the acquiring shareholder wealth around the takeover announcement. The novelty of this study stems from the characteristics of the recent M&A activities. Beyond being the most important M&As waves in history, recent M&As are characterized by many interesting features such as the large cross-border takeovers, the use of equity as opposed to debt as in the 1980s and a preference for friendly, strategically motivated deals instead of hostile financially motivated deals. Another distinctive feature of recent years is the increased focus on improving internal corporate governance mechanisms in order to maximise firm value. In addressing of these characteristics, we distinguish between cross-border and domestic deals, takeovers on the rising side (the takeover active period) and the slumping side (the takeover less active period) of the M&A wave. Both univariate tests and multivariate tests are employed in our empirical studyWe find a significant negative relation between the probability of post-takeover target CEO turnover and pre-takeover performance in the full samples. This indicates the disciplinary function of UK takeovers in the recent M&A wave. Such a relation only exists on the rising side of the M&A wave, implying that such disciplinary takeovers are confined only to the active period. However, a lower CEO turnover follows cross-border takeovers, indicating that the local CEO's experience and knowledge of the business and of the environment appear to be valuable to foreign acquirers. There is some evidence to point that better governance, such as greater blockholder ownership and a greater proportion of non-executive, lowers the probability of CEO turnover in the takeover active period. The results are similar to findings by Kini et al. (2004) suggesting that takeovers play less of a disciplinary role in the more recent M&A wave and act as a court of last resort when other governance mechanisms are weak.Focusing on the short-term return, we find significant losses for acquiring firms around the takeover announcement. The losses mainly existed in UK domestic takeovers, while the returns for foreign acquirers are not significantly different form zero. Legal difference and culture difference are positively associated with the gains of acquiring firms. Moreover, we find no relationship between acquirer's returns and the intensity of M&A. High-tech takeovers brought lower abnormal returns to acquiring firms than non-high-tech takeovers, which is even worse after the crash of global IT industry in 2000. Further, we find that the acquiring firms have better returns, when target firms have post-takeover CEO turnover, a greater proportion of non-executive and a lower blockholder ownership. The results indicate the significant influence of the target governance on acquirer's gains