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CEO’s term of office, Governance Structure and

Acquisition Performance

--

Based on North American market

 

           

 

 

 

 

Master Thesis Finance

 

       

Xiaoqian Sun

10839801

Supervisor: Tolga Caskurlu

July, 2015

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Statement of Originality

This document is written by Student [Xiaoqian SUN] who declares to

take full responsibility for the contents of this document.

I declare that the text and the work presented in this document is

original and that no sources other than those mentioned in the text and

its references have been used in creating it.

The Faculty of Economics and Business is responsible solely for the

supervision of completion of the work, not for the contents.

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Content

Abstract ... 4

Section I: Introduction ... 5

Section II: Literature Review ... 7

2.1 CEO’s term of office ... 7

2.2 Governance factors ... 10

Section III: Data &Methodology ... 13

3.1 Sample selection ... 15 3.2 Data analysis ... 15 3.2.1 Dependent Variables ... 15 3.2.2 Independent Variables ... 16 3.2.3 Control Variables ... 17 3.3 Methodology ... 17

3.3.1 Part one: CEO tenure & likelihood of the acquisition ... 17

3.3.2 Part two: CEO’s term of office after the acquisition ... 18

Section IV: Empirical Test & Analysis ... 18

4.1 Regression result ... 18

4.1.1 Part one: CEO tenure & likelihood of the acquisition ... 18

4.1.2 Part two: CEO tenure after the acquisition ... 21

4.2 Robustness  checks  ...  27

Section V: Conclusion ... 29

Section VI: References ... 33

               

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Abstract    

 

Using   cumulated   abnormal   return   as   the   measure   of   acquisition   performance,   the  paper  researched  the  CEO’s  term  of  office,  acquisition  performance  as  well  as   the   corporate   governance   factors.   Specifically,   the   study   finds   that   the   longer   CEO   tenure   before   the   acquisition   would   increase   the   likelihood   of   acquisition   completion;  the  bidders  who  complete  the  deals  show  more  significant  negative   relationships   between   acquisition   performance   and   CEO   after-­‐acquisition   turnover  comparing  to  the  bidders  who  cancel  the  deal;  CEO  who  comes  with  a   longer  tenure  before  the  acquisition  decreases  the  likelihood  of  being  dismissed   in   case   of   a   bad   acquisition.   Moreover,   the   governance   factors   (number   of   independent   shareholder;   the   shares   of   single   largest   shareholder;   board   size;   E-­‐index;   CEO-­‐Chairman   duality)   influence   the   likelihood   of   the   deals   and   after-­‐acquisition  turnovers  at  different  extents.  

   

Key   word:   CEO   tenure;   CEO   turnover;   acquisition   performance;   corporate  

governance  structure                          

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 5   Section  I:    

Introduction  

 

CEO’s   term   of   office   has   been   paid   increasing   attention   by   scholars   and   investors  since  it  does  not  simply  reflect  to  the  governance  efficiency  but  also   crucial  to  the  corporate  performance  (Hermalin  and  Weisbach,  2001;  Murphy   and   Zimmerman,   1993;   Huson,   Parrino   and   Starks,   2001).   There   are   large   numbers   of   current   research   that   focus   on   CEO’s   term   with   the   governance   structure   (Weisbach,   1988;   Goyal   and   Park,   2002;   Fisman   et   al,   2013)   and   CEO’s  turnover  with  corporate  performance  (Lehn  and  Zhao,  2006;  Kaplan  and   Minton,  2012),  but  there  is  very  few  paper  that  focusing  on  CEO’s  term  of  office   and   acquisition   performance   from   a   governance   perspective.   The   central   research  question  of  the  paper  is,  how  does  the  acquisition  behavior  affect  the   CEO’s  term  of  office  on  the  bidder  side?  Around  the  main  research  question,  the   following  questions  will  be  discussed  as  well:  Does  a  longer  CEO  tenure  before   the   acquisition   lead   to   a   larger   possibility   of   success?   Does   the   bidders   who   complete   and   withdraw   the   deal   differs   in   CEO   turnover   afterwards?   Does   a   longer  CEO  tenure  before  the  acquisition  reduce  its  turnover  rate  in  case  of  a   bad   acquisition?   Furthermore,   how   does   the   different   governance   structure   influence  the  CEO  turnover  for  the  change?    

 

The   research   sample   is   constructed   from   seven   databases   as   well   as   hand   collection.  Based  on  North  American  market,  the  paper  study  the  CEO’s  term  of   office,  corporate  governance  structure  and  acquisition  performance  from  2002   to  2011.  The  study  illustrates  CEO’s  term  of  office  in  two  parts:  before  and  after   the   acquisition.   The   result   shows   that   the   bidder’s   CEO   tenure   is   positively   correlates  with  the  likelihood  of  the  acquisition.  In  addition,  bidder’s  CEO  that   comes  with  a  longer  tenure  before  the  acquisition  decreases  the  likelihood  of   being  dismissed  in  case  of  a  bad  acquisition.  The  paper  would  contribute  to  the   existing   literatures   in   multiple   ways.   Most   of   the   current   literatures   mainly  

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focused   on   the   CEO   tenure   and   corporate   performance,   or   on   the   acquisition   performance  and  the  CEO  turnover.  There  is  very  few  available  paper  to  study   the  relationships  between  CEO’s  term  of  office  and  the  corporate  performance   from  an  acquisition  perspective.  More  specifically,  CEO’s  term  of  office  before   and   after   the   acquisition   will   be   separately   discussed,   which   include   bidder’s   CEO   tenure,   CEO   turnover   and   acquisition   performance.   Different   from   the   previous  studies  (Haleblian  and  Finkelstein,  1999;  Lehn  and  Zhao,  2006),  this   paper  use  Fama-­‐French  three-­‐factor  model  to  calculate  the  abnormal  returns  as   acquisition  performance.  In  addition,  the  governance  mechanism  factors  will  be   further  illustrated  together  with  the  tenure  and  turnover  in  order  to  fill  in  the   vacant.    

 

Merger   and   acquisition   (M&A)   has   become   a   popular   way   of   enlarge   the   corporation   and   increase   its   competitive   power   due   to   the   rapid   growing   of   global  economics.  From  the  history,  we  can  still  see  the  long  procedure  of  the   acquisition   made   by   AOL   (America   Online)   and   Warner   Bros.,   which   gained   win-­‐win  strategy  and  built  the  great  Time  Warner  today.  However,  the  media   giant  21st  Century  Fox  withdrew  the  deals  of  acquiring  Time  Warner  in  2014,   which  caused  a  huge  loss  for  the  company.  From  the  story,  we  can  see  that  M&A   is  not  only  meaningful  to  the  strategy  of  corporate  development  but  also  crucial   to  the  corporate  performance.  

 

There   is   an   increasing   debate   of   the   CEO’s   term   of   office   and   the   corporate   performance.  The  resource-­‐based  scholars  argues  that  the  longer  the  CEO  stays   within   the   company,   the   more   specific   experiences   he   has   and   it   would   be   beneficial  to  the  company  (Beigh,  2001).  While  the  Upper  Echelons  Perspective   suggest   that,   rather   than   the   short   CEO   retention,   the   longer   tenure   goes   against  to  improve  the  corporate  performance  due  to  the  power  concentration   and  over  confidence  (Hambrick  and  Fukutomi,  1991;  Miller  and  Shamsie,  2001).     In   this   paper,   I   would   study   the   CEO’s   term   of   office   and   the   acquisition  

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performance   since   M&A   is   an   significant   measurement   for   corporate   performance.   Moreover,   it   is   the   CEO   who   takes   charge   and   who   is   mainly   responsible   for   the   acquisition,   and   a   successful   acquisition   is   an   individual   achievement  of  the  bidder’s  CEO  (  El-­‐Khatib,  Fogel  and  Jandik,  2015).      

 

The  study  proceeds  as  follows:  Section  2  presents  the  literature  review  of  the   related  contributions;  Section  3  describes  the  data  and  research  methodology;   Section  4  discusses  the  empirical  results  and  robustness  checks  and  Section  5   presents  the  conclusion.  

   

Section  II:    

Literature  Review  

 

2.1  CEO’s  term  of  office    

CEO   tenure   and   the   corporate   performance   has   been   widely   discussed   in   the   field   of   enterprise   strategic   management   (Miller,   1991),   and   it   attracts   increasingly   attention   during   the   recent   years.   With   the   separation   of   ownership   and   control,   to   some   extent,   the   board   of   directors   is   the   nominal   highest  decision  maker  while  CEO  is  the  actual  controller  within  the  company.   According   to   Xu   and   Li   (2007),   CEO   can   potentially   construct   his   own   ‘team'   with  those  who  obey  his  order.  It  might  probably  result  in  a  situation  that,  even   though,   there   are   numbers   of   independent   directors,   the   monitoring   is   not   perfect  due  to  the  information  asymmetry,  and  the  independent  directors  may   not  take  too  much  time  for  getting  to  know  the  company.  As  a  result,  the  board   of  directors  have  to  concede  and  give  the  highest  decision  maker  position  to  the   CEO  for  series  of  investment  decisions  (Rosenstein,  1988).  CEO  is  crucial  to  the   enterprise,   as   it   reflects   to   the   supreme   administrator.   Therefore,   the   CEO   tenure   plays   a   critical   role   in   affecting   the   investment   decision   and   thus  

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influences  the  corporate  performance  (Hambrick  and  Mason,  1984)    

However,   there   are   debates   regarding   to   the   CEO   tenure   and   corporate   performance.   The   resource-­‐based   scholars   suggest   that,   the   longer   the   CEO   stays   within   the   company,   the   more   specific   experiences   he   has.   Thus,   it   is   beneficial   to   increase   the   corporate   performance   and   the   competitive   power   (Beigh,  2001).  In  addition,  as  a  rule  of  survival  of  the  fittest,  the  CEO  who  comes   with  an  inadequate  performance  faces  a  bigger  chance  of  turnover  comparing   to  the  one  with  a  better  work.  Hence,  the  long  tenure  also  reflects  a  preferable   corporate  performance  as  well  as  a  mark  for  individual  success  (Boeker,  1992).   Furthermore,   Beigh   (2001)   assumes   that   the   longer   CEO   retention   correlates   with   a   better   performance   in   the   acquisition.   In   turn,   the   shorter   tenure   associates  with  a  higher  probability  of  being  acquired  by  others  in  the  future.   As   to   Chikh   and   Filbien   (2011),   they   find   that   CEOs   with   stronger   social   ties   usually   have   a   lower   possibility   to   cancel   the   deal   even   if   they   met   negative   market   responses.   As   the   CEO   has   a   long   tenure   before   acquisition,   he   might   comes   with   stronger   management   power,   tighter   social   ties   and   more   experiences.   Thus,   we   might   argue   that   a   longer   CEO   tenure   might   be   more   likely  to  lead  to  an  successful  deal.  

 

On  the  other  hand,  the  Upper  Echelons  Perspective  insist  that,  comparing  with   the   short   CEO   retention,   the   longer   tenure   goes   against   to   improve   the   corporate   performance   (Hambrick   and   Fukutomi,   1991;   Miller   and   Shamsie,   2001).  They  regard  CEO  tenure  as  the  management  lifecycle,  CEO  differs  in  the   degree  of  the  mind,  the  information  and  the  attempt  across  different  periods.   Accordingly,  CEO  might  come  with  different  management  performances  in  each   period.  At  the  beginning  of  the  management  lifecycle,  CEO  is  comparably  open   minded,   with   huge   interests   and   develops   numerous   methods   of   acquiring   information   to   adapt   the   new   environment   and   make   suitable   strategies.   Therefore,  within  a  short  tenure,  CEO  usually  comes  with  a  positive  influence  

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on  the  corporate  performance.  While  as  the  tenure  getting  longer,  the  former   success  might  become  traps  for  today.  They  become  over-­‐confidence  as  well  as   conceit.  Thus,  they  refuse  to  make  innovations  and  stay  on  the  old  governance.   As  a  result,  the  corporate  is  going  far  away  with  the  society  and  lead  to  a  bad   performance.   Moreover,   the   longer   tenure   might   associates   a   stronger   management   power,   which   increase   its   social   ties   but   might   neutralise   the   monitoring   power   from   board   members   (Fracassi   and   Tate,   2012;   El-­‐Khatib,   Fogel  &  Jandik,  2015).  Thus,  it  is  meaningful  to  study  the  CEO  tenure  and  the   likelihood  of  acquisition.    

 

The   successful   acquisition   is   an   individual   achievement   for   good   CEO   performance  on  the  bidder  side  (El-­‐Khatib,  Fogel  and  Jandik,  2015).  According   to   Lehn   and   Zhao   (2006),   although   merger   and   acquisition   activities   are   approved  by  the  entire  board,  CEO  is  the  core  person  who  launched  and  who  is   responsible  for  the  whole  procedure.  Moreover,  CEO  faces  various  considerable   decisions   during   the   M&A   activities,   which   every   little   factor   matters   for   the   acquiring  valuation.  As  soon  as  the  acquisition  decision  is  being  made,  the  CEO   also  faces  various  market  reactions  and  pressures.  It  is  therefore  he  might  come   across   another   decision   to   continue   or   cancel   the   deal.   Once   the   deal   is   completed,  the  corporation  might  still  face  a  favourable  or  dissatisfying  return.   Thus,  the  CEO  might  confront  with  a  dismiss  in  case  of  a  bad  situation.  Similar   to  Allgood  and  Farrell  (2000),  the  paper  also  study  the  CEO  turnover  with  the   corporate   performance.   The   study   will   also   include   the   forced   turnover   only,   which   exclude   the   retirement,   death,   illness   or   no   reasons   reported   on   the   database  (Allgood  and  Farrell,  2000).    

 

In  perfect  markets,  the  stock  price  reflects  the  corporate  performance  (Morck,   Yeung  and  Yu,  2000).  Thus,  the  stock  price  after  the  acquisition  announcement   could  reflect  the  bidder's  performance  straightforwardly.  As  a  consequence,  the   ‘good   bidders'   will   associate   with   a   higher   abnormal   stock   return,   while   the  

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‘bad   bidders'   will   probably   face   a   negative   return   and   their   CEOs   face   disciplines  (Lehn  and  Zhao,  2006).  As  to  Lehn  and  Zhao  (2006),  they  tested  the   bidder  returns  and  the  CEO  turnover  and  find  there  is  an  inverse  relationship   between   them.   Furthermore,   they   conclude   that   there   is   no   significant   relationship  of  returns  between  cash  and  stock  acquisitions,  which  is  opposite   to  Shleifer  and  Vishny’s  (2003)  ‘stock  market  driven’  theories  (Lehn  and  Zhao,   2006).   Based   on   their   research,   the   paper   will   also   study   the   relationship   between   CEO’s   term   of   office   after   the   acquisition   and   its   acquisition   performance.  The  study  will  adopt  Fama-­‐French  three-­‐factor  model  to  calculate   the   abnormal   returns   rather   than   CAMP   model.   I   also   assume   the   bad   acquisition   performance   associates   with   a   relatively   short   term   of   office   afterwards.   Moreover,   if   the   CEO   experienced   a   long   tenure   before   the   acquisition,  his  turnover  possibility  might  be  much  more  lower  in  case  of  a  bad   acquisition   than   the   CEO   with   a   short   tenure.   Because   of   the   accumulated   experiences   and   management   power,   the   turnover   rate   might   be   not   easily   affected   by   a   single   acquisition.   As   to   Dikolli,   Mayew   and   Nanda   (2014),   they   study   the   CEO’s   turnover   and   find   it   declines   with   its   tenure.   In   addition,   the   study   will   also   include   the   governance   variables   based   on   Lehn   and   Zhao’s   (2006)   research,   which   only   focus   on   the   governance   variables   and   the   cumulative  abnormal  returns,  but  does  not  figure  the  associations  between  the   governance  variables  and  the  CEO  turnover.    

 

  2.2  Governance  factors  

 

Corporate   governance   has   been   paid   attention   by   scholars   and   investors   increasingly  since  it  does  not  simply  influence  the  firm  value  but  also  crucial  to   the   whole   economy   (Bebchuk   &   Hamdani,   2009).   Hermalin   and   Weisbach   (2001)  examined  its  importance  and  find  that  the  board  structure  (e.g.  scale  or   construction)   influences   the   behavior   of   the   board   of   directors   (e.g.   CEO   turnover).   In   addition,   besides   of   the   discipline   from   the   external   market,   the  

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internal  governance  also  plays  a  role  in  affecting  the  CEO  tenure  (Walters,  Kroll   and  Wright,  2007).  Hence,  it  is  important  to  include  the  governance  structure  in   studying  the  CEO  tenure  concerning  the  acquisition.    

 

Independent   board   directors.   Baysinger   and   Butler   (1985),   Wei   et   al.   (2007)  

suggest   that   the   percentage   of   independent   director   shows   a   significantly   positive   relationship   with   the   governance   performance.   They   base   on   the   agency   theory   and   argue   that   the   independent   board   directors   are   more   objective   in   monitoring   the   governance   (Fama   and   Jensen,   1983).   Hence,   we   can   expect   that   the   CEO   is   better   monitored   in   a   company   with   more   independent  board  directors.  Thus,  once  the  bidder's  return  does  not  perform   good,   the   CEO   faces   discipline   also   from   the   independent   board   directors.   On   the  other  hand,  the  other  scholars  insist  the  independent  board  directors  and   the   corporate   performance   are   inversely   correlated   due   to   the   potential   information  cost  (e.g.  Fosberg,  1989).  Thus,  there  will  be  one  probability  that   there  is  no  significant  relationship  between  the  independent  directors  and  the   corporate  performance  if  we  put  these  benefits  and  disadvantages  together.    

 

Single   largest   shareholder.   Grossman   and   Hart   (1980)   examine   that   the   block  

holder   or   ownership   concentration   within   a   company   is   beneficial   to   the   corporate  governance.  He  argue  that  the  small  shareholder  has  to  pay  more  for   the   monitoring   comparing   to   their   management   income   under   the   diffuse   ownership,   such   that   they   usually   lack   motivations   for   the   governance   supervision.   Thus,   one   might   argue   that   the   shares   of   the   single   largest   shareholder   is   positively   correlated   with   the   monitoring   and   might   lead   to   a   higher   chance   for   CEO   turnover   in   case   of   being   a   ‘bad   bidder'.   However,   Demsetz   and   Lehn   (1985),   Shleifer   and   Vishny   (1997)   demonstrate   that   the   majority  shareholders  might  harm  the  minority  shareholders'  interests  in  order   to  increase  their  own  benefits.  It  would  lead  to  a  negative  relationship  between   the  single  largest  shareholder  and  the  governance  performance.  

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CEO-­‐chair   duality.   With   the   introduction   of   the   Stewardship   theory   by   Davis,  

Schoorman  and  Donaldson  (1997),  they  argue  that  the  CEO-­‐chair  duality  could   reduce  the  power  conflicts  between  the  two  positions,  such  that  it  reduces  the   agency   cost   and   increases   governance   efficiency.   They   assume   the   duality   position  might  increase  the  probability  of  CEO’s  serving  more  sincerely  for  the   company   and   maximize   shareholder's   benefit.   On   the   contrary,   Fama   and   Jensen   (1983)   hold   the   opposite   opinion.   Under   the   duality,   the   monitoring   function  reduces  since  the  CEO  is  monitoring  himself.  As  to  Jensen  (1993),  the   CEO  might  not  implement  the  monitoring  which  is  away  from  his  interest.  He   suggests   separating   the   CEO   and   chairman   in   order   to   make   the   governance   more   efficient.   In   addition,   the   duality   would   make   the   CEO   have   significant   power   in   making   important   decisions   with   a   higher   probability   to   lead   into   a   dictatorship.  Therefore,  it  might  positively  affect  his  tenure  even  though  after  a   bad  acquisition  performance.    

 

Board  size.  According  to  Jensen  (1993),  companies  with  smaller  board  size  have  

higher  governance  efficiency  and  corporate  performance.  He  suggests  that  the   board   should   keep   the   numbers   of   directors   within   seven   or   eight   people.   Similarly,  Lipton  and  Lorsch  (1992)  also  argue  that  the  board  members  should   not   exceed   ten.   Otherwise   the   large   number   might   influence   the   internal   communication   and   affect   corporate   performance.   From   that   perspective   of   view,  CEO  is  better  monitored  in  corporations  with  smaller  board  size  and  faces   a  higher  probability  of  discipline  in  case  of  the  bad  performance.  However,  an   alternative   view   is   that   large   board   size   might   include   complementary   knowledge   in   management   and   experiences,   which   could   generate   more   information   and   resources   (Ocasio,   1994).   Thus,   by   averaging   the   points   of   view   of   the   two   perspectives,   the   relationship   between   CEO   tenure   and   the   board  size  is  full  of  uncertain.  

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E-­‐index.   Based   on   the   GIM   index   from   Gompers,   Ishii   and   Metrick   (2003),  

Bebchuk,   Cohen   and   Ferrell   (2006)   study   the   E-­‐index   governance   entrenchments   in   evaluating   the   governance   performance   of   the   companies.   They   show   an   index   consist   of   six   provisions   (staggered   boards,   limits   to   shareholder   bylaw   amendments,   poison   pills,   golden   parachutes,   and   supermajority   requirements   for   mergers   and   charter   amendments)   that   inversely   correlate   with   the   performance.   Bebchuk,   Cohen   and   Ferrell   (2006)   show  that  the  low  index  reflect  a  'Democracy'  governance  and  the  high  index   lead  to  the  ‘Dictatorship'.  The  index  also  reflects  to  the  ability  of  shareholder  to   replace   the   management   team   (Dikolli,   Mayew   and   Nanda,   2014).   Therefore,   one   might   expect   that   the   CEO   is   more   likely   to   be   taken   over   under   a   low   E-­‐index  if  it  acts  as  a  ‘bad  bidder'.  

   

Section  III  

Data  &  Methodology  

 

3.1 Sample  selection    

The   database   is   constructed   from   seven   databases.   It   is   initially   based   on   the   North   American   companies   that   are   available   from   Thomson   One   Securities   Data  Company  (SDC)  Merge  and  Acquisitions  database.  The  study  includes  the   deal  ‘complete’  and  ‘withdraw’  from  2002  to  2011,  which  provides  the  sample   large   and   newly   enough   for   the   current   research.   Furthermore,   the   initial   database  is  further  merged  with  Compustat,  since  Compustat  and  CRSP  are  the   main   sources   of   the   financial   data   and   stock   prices.   Following   the   previous   research   (e.g.   Lehn   and   Zhao,   2006)   for   representing   large   investment   and   avoiding   of   potential   errors,   the   sample   excludes   the   target   firms   that   are   no   more   than   5%   value   of   the   bidders.   The   CEO   status   are   collected   from   ExecuComp,  which  include  the  date  of  being  a  CEO,  date  for  leaving  and  the    

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leaving   reasons.   The   governance   data   is   obtained   from   Field-­‐Ritter   dataset   of   company  founding  dates,  Thomson  Reuters  and  Institutional  Shareholder     Services   (ISS).   The   study   also   hand-­‐collected   missing   data   from   company  

Table  1  

Code   Variable   Source  

Deal   Acquisition  status   Thomson  One  Securities  

Data  Company  (SDC)  

Turnover   Whether  bidder’s  CEO  is  replaced  

within  3  years   Execucomp  

Ten0   Years  of  bidder’s  CEO  tenure  before  

the  acquisition     Execucomp  

Ten1   Years  of  bidder’s  CEO  tenure  after  the  

acquisition   Execucomp  

CAR   Bidder’s  cumulated  abnormal  return  

around  announcement  date   CRSP  

Indep_board   Percentage  of  independent  board  

members   Thomson  Reuters  

Sing_largest   Single  largest  shareholder   Thomson  Reuters  

Boardsize   Board  size   Thomson  Reuters  

Eindex   Governance  provisions  index   Institutional  Shareholder   Services  (ISS)  

Duality   CEO-­‐  Chair  duality   Thomson  Reuters  

DEratio   Debt-­‐equity  ratio   Compustat  

Tobinq   Market  to  book  value   Compustat  

Ceo_age   CEO’s  age   Institutional  Shareholder  

Services  (ISS)  

Ceo_share   CEO’s  share  holding   Institutional  Shareholder  

Services  (ISS)  

Firm_age   Firm  age   Field-­‐Ritter  dataset  

Firm_size   Firm  size   Compustat  

Industry   Whether  the  bidder  and  target  are  

from  the  same  industry  

Thomson  One  Securities   Data  Company  (SDC)  

Table   1   presents   a   summary   of   all   the   variables   which   provides   brief   descriptions   and   data   sources  of  all  variables  from  the  sample.  

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websites.   Unfortunately,   there   are   unavoidable   missing   values   in   the   dataset.   Nevertheless,  the  observations  in  the  sample  are  convincing  enough  to  support   the  study  results.  

 

3.2  Data  analysis    

Table   1   presents   a   summary   of   all   the   variables   which   provides   brief   descriptions  and  data  sources  of  all  variables  from  the  sample.  

 

3.2.1  Dependent  variable    

Deal   (0   or   1):   It   shows   the   status   of   an   acquisition.   All   the   sample   companies  

declared  the  announcement  of  acquisitions,  while  some  companies  completed   and  someone  withdrew.  Hence,  the  Deal  takes  1  if  ‘complete’  and  0  if  ‘withdraw’.   There  are  335  out  of  428  companies     which  completed  the  deal  in  the  sample   as   the   result   of   further   merges   with   the   other   databases.   For   the   same   CEO   companies  that  completed  more  than  one  deal,  the  study  will  only  keep  the  first   deal  for  each  company  and  each  CEO.  

 

Turnover  (0  or  1):  Following  with  Parrino  (1997)  and  Lehn  &  Zhao  (2006),  the  

turnover   is   initially   defined   that   as   the   CEO   is   being   replaced   due   to   internal   governance,  takeovers  or  bankruptcy.  It  except  the  retirement,  death,  illness  or   no  reasons  reported  on  the  database  (Allgood  and  Farrell,  2000).  It  takes  1  if   the   CEO   is   replaced   within   three   years   after   acquisition.   That   is   one   of   the   reasons  for  the  data  selection  period  from  2002  till  2011.  There  are  131  sample   companies  replace  their  CEO  within  three  years  after  the  acquisition  regardless   of   the   retirement.   In   addition,   43   out   of   131   are   the   ones   who   withdraw   the   acquisition  after  the  announcement.    

 

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Due  to  the  sample  limitation,  the  dataset  only  covers  the  deals  after  2002.  Thus,   the   maximum   of   the   CEO’s   tenure   after   the   acquisition   is   approximately   15   years   in   the   sample.   The   average   CEO’s   term   of   office   after   the   acquisition   is   around  five  years  among  the  sample.    

 

3.2.2  Independent  variable  

 

Tenu0:   It   measures   the   number   of   years   which   CEO’s   tenure   before   the  

acquisition.   The   average   CEO’s   tenure   in   the   sample   is   7.5   years,   the   shortest   tenure  is  less  than  3  months  and  the  longest  is  more  than  35  years.  

 

Cumulative   abnormal   return   (CAR):   Unlike   the   previous   literature   adopting  

CAMP   model   (Haleblian   and   Finkelstein,   1999;   Lehn   and   Zhao,   2006),   the   abnormal  return  in  this  study  is  calculated  by  using  Fama-­‐French  three-­‐factor   model  that  includes  size  and  book-­‐to-­‐market-­‐equity  to  illustrate  the  acquisition   performance  more  precisely.  The  acquirer’s  cumulative  abnormal  returns  will   be  computed  by  using  a  three-­‐day  and  a  five-­‐day  event  window.    

 

Corporate   Governance   factors:   As   mentioned   above,   there   are   some   include  

variables  which  study  the  relationship  between  the  governance  structure  and   the   CEO   tenure   for   the   acquisition.   The   percentage   of   independent   board  

members   (Indep_board)   measures   the   corporate   monitoring   power;   Single   largest   shareholder   (Sing_largest)   shows   the   ownership   concentration;   CEO-­‐   chair   duality   (Due)   measures   the   CEO   power;   Board   size   (Boardsize)   presents  

the   number   of   board   members   in   the   corporation   and   E-­‐index   (EIndex)   measures   the   corporate   governance   provisions,   which   is   based   on   Bebchuk,   Cohen   and   Ferrell   (2009).   Our   database   is   constructed   from   2002   since   the   E-­‐index  database  is  only  available  from  2002.  

   

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  17   3.2.3  Control  variable  

 

All   of   the   control   variables   are   collected   from   the   year   before   acquisition.  

Leverage   (DE_ratio)   measures   the   capital   structure   of   the   company.   Debt   to  

equity  ratio  is  frequently  used  in  the  empirical  research  (Jensen  and  Meckling,   1977),  which  shows  the  financial  structure  and  default  risks.;  Tobin’s  Q  (Tobinq)   presents  the  value  of  the  firm,  following  the  calculation  by  Gompers,  Ishii  and   Metrick  (2003),  the  ratio  is  calculated  by  the  market  value  to  book  value.  As  to   Claessens  et  al.  (2002),  an  elder  (Firm_age)  and  larger  firm  (Firm_size)  has  less   distress  probabilities.  The  firm  size  is  calculated  by  the  logarithm  of  the  total   asset,   while   the   age   of   the   company   is   measured   as   the   difference   between   current  year  (2015)  and  the  founding  year.    

 

Moreover,  the  variables  like  CEO  ownership  (Ceo_share)  and  CEO  age  (Ceo_age)   will  also  be  controlled  in  the  study.  As  Hambrick  and  Mason  (1984)  argue,  CEO   with   a   large   holding   percentage   might   reduce   the   agency   problems.   While   an   elder  CEO  might  comes  with  more  experiences  in  corporation  management  (Xu   and   Li,   2007).   Furthermore,   the   study   also   control   the   business   relativeness  

(Industry)  with  the  bidders  and  the  targets.  It  equals  to  one  if  the  two  parties  

from  the  same  industry  (based  on  SIC  code)  and  zero  otherwise.    

3.3  Methodology  in  empirical  test  

 

The   study   will   be   mainly   discussed   in   two   parts:   before   and   after   the   acquisition.  Part  one  presents  the  result  of  the  CEO  tenure  and  the  likelihood  of   the  acquisition;  part  two  discusses  the  CEO  tenure  after  the  acquisition  as  well   as  the  CEO  turnover.  

 

3.3.1  Part  one:  CEO  tenure  &  likelihood  of  the  acquisition    

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In   order   to   research   the   CEO   tenure   and   the   likelihood   of   the   acquisition,   a   Probit   model   will   be   applied   in   this   research.   Two   regressions   will   be   analysed  separately  with  and  without  corporate  governance  factors:  

 

A1:  Prob(Deal)=  𝛼!+ 𝛽!𝑇𝑒𝑛𝑢!+ 𝑐𝑜𝑛𝑡𝑟𝑜𝑙  𝑣𝑎𝑟𝑠  

A2:  Prob(Deal)=  𝛼!+ 𝛽!𝑇𝑒𝑛𝑢!+ 𝛽!𝐼𝑛𝑑𝑒𝑝 + 𝛽!𝑆𝑖𝑛 + 𝛽!𝐷𝑢𝑒 + 𝛽!𝐵𝑠𝑖𝑧𝑒  

+𝛽!𝐸𝐼𝑛𝑑𝑒𝑥 + 𝑐𝑜𝑛𝑡𝑟𝑜𝑙  𝑣𝑎𝑟𝑠    

3.3.2  Part  two:  CEO’s  term  of  office  after  the  acquisition    

To   examine   the   CEO   tenure   after   the   acquisition,   the   study   analyse   the   cumulated  abnormal  returns  on  the  428  U.S.  bidders  using  event  study.  Unlike   the  previous  research,  the  study  treats  the  cumulated  abnormal  return  (CARs)   as  the  independent  variable,  which  measures  the  acquisition  performance  in   the  CEO  tenure  afterwards.  The  main  models  that  will  be  used  in  Part  two  are:  

  B:  Turnover=𝛼!+ 𝛽!CAR+  𝛽!𝐼𝑛𝑑𝑒𝑝 + 𝛽!𝑆𝑖𝑛 + 𝛽!𝐷𝑢𝑒 + 𝛽!𝐵𝑠𝑖𝑧𝑒   +𝛽!𝐸𝐼𝑛𝑑𝑒𝑥 + 𝑐𝑜𝑛𝑡𝑟𝑜𝑙  𝑣𝑎𝑟𝑠   C:  Turnover=𝛼!+ 𝛽!𝑇𝑒𝑛𝑢!+  𝛽!𝐼𝑛𝑑𝑒𝑝 + 𝛽!𝑆𝑖𝑛 + 𝛽!𝐷𝑢𝑒 + 𝛽!𝐵𝑠𝑖𝑧𝑒   +𝛽!𝐸𝐼𝑛𝑑𝑒𝑥 + 𝑐𝑜𝑛𝑡𝑟𝑜𝑙  𝑣𝑎𝑟𝑠   D:  Turnover=𝛼!+ 𝛽!CAR + 𝛽!𝑇𝑒𝑛𝑢!+  𝛽!𝐼𝑛𝑑𝑒𝑝 + 𝛽!𝑆𝑖𝑛 + 𝛽!𝐷𝑢𝑒   +𝛽!𝐵𝑠𝑖𝑧𝑒 + 𝛽!𝐸𝐼𝑛𝑑𝑒𝑥 + 𝑐𝑜𝑛𝑡𝑟𝑜𝑙  𝑣𝑎𝑟𝑠       Section  IV  

Empirical  test  &  analysis  

 

4.1  Regression  result    

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Table  2

  Prob.  of  the  Deal  

  Model  A1   Model  A2  

Ten0   0.0047b   (2.06)   0.0057b   (2.50)   0.0083a   (3.47)   0.0093a   (4.19)   0.0080a   (3.54)   0.0075a   (3.33)   0.0094a   (3.87)   Indep_board     0.0050a   (3.35)           0.0041a   (2.71)   Sing_largest         0.0039c   (1.87)         0.0089b   (2.11)   Boardsize         0.0245a   (5.66)       0.0266a   (6.06)   Eindex           0.0256a   (2.86)     0.0177   (1.59)   Duality             0.0479b   (1.89)   0.0543b   (2.19)   DEratio   -­‐0.0129a   (-­‐2.59)   -­‐0.0119b   (-­‐2.35)   -­‐0.0097c   (-­‐1.74)   -­‐0.0133b   (-­‐2.54)   -­‐0.0167a   (-­‐3.16)   -­‐0.0139   (-­‐2.66)   -­‐0.0080   (-­‐1.61)   Tobinq   0.0335a   (2.66)   0.0416a   (3.27)   0.0403a   (3.01)   0.0499a   (3.96)   0.0397a   (3.12)   0.0417a   (3.26)   0.0400a   (3.06)   Ceo_age   0.0164a   (8.19)   0.0142a   (7.16)   0.0156a   (7.48)   0.0155a   (7.57)   0.0150a   (7.18)   0.0139a   (6.72)   0.0163a   (7.62)   Ceo_share   0.092a   (3.91)   0.0627a   (8.99)   0.0640a   (10.01)   0.0601a   (10.93)   0.0676a   (10.22)   0.0669a   (10.19)   0.0579a   (9.32)   Firm_age   0.0002   (0.68)   0.0005b   (1.94)   0.0003c   (1.70)   0.0006b   (2.39)   0.0005b   (2.02)   0.0003   (1.60)   0.0005c   (1.89)   Firm_size   0.0313b   (3.75)   0.0197b   (2.26)   0.0150c   (1.73)   0.0157c   (1.72)   0.0127   (1.65)   0.0201b   (2.24)   0.0205b   (2.22)   Industry   0.1032a   (4.36)   0.1186a   (4.09)   0.1241a   (4.64)   0.1148c   (4.52)   0.1542a   (6.18)   0.1412a   (5.27)   0.0074c   (1.86)   Observation   428   423   423   423   412   419   412   Overall  R2   0.116   0.108   0.105   0.119   0.110   0.102   0.098  

Table  2  presents  the  result  of  the  CEO  tenure  with  the  likelihood  of  the  acquisition  completion.  Model  A1  shows  

that  the  relationship  between  CEO  tenure  and  the  likelihood  of  the  deal  completion  without  adding  governance   factors;   Model   A2   shows   that   the   relationship   between   CEO   tenure   and   the   likelihood   of   the   deal   completion  

together  with  the  governance  factors;  In  Model  A2  ,  each  of  the  governance  factor  is  tested  individually,  and  then  

all  factors  are  regressed  together  with  the  probability  of  the  deal  completion.  Significant  levels  are  indicated  by  a,   b  and  c  for  1%,  5%  and  10%  respectively.  

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As   Table   2   presents,   Model   A1   shows   the   result   that   CEO   tenure   before  

acquisition   is   positively   correlated   with   the   likelihood   of   the   acquisition.   In   Model   A2,   each   of   the   governance   factor   is   tested   individually,   and   then   all  

factors  are  regressed  together  with  the  probability  of  the  deal  completion.  The   results   reflect   that   as   the   CEO   comes   with   a   longer   tenure   and   more   management  experiences,  he  might  has  a  lower  probability  of  cancelling  the   deal.  The  result  is  even  more  significant  at  1%  level  in  all  of  the  regressions  in   model  A2  as  we  assumed  before.  In  Model  A1,  as  the  CEO’s  tenure  increase  one  

year   longer   before   the   acquisition,   the   probability   of   the   cancelling   the   acquisition  deal  will  decrease  by  0.0047.  As  we  can  also  see  from  the  table,  the   larger   firm   that   has   a   higher   market   value   is   also   correlates   with   a   lower   probability  of  cancelling  the  deal.  Moreover,  the  bidders  and  targets  from  the   same  industry  are  also  less  likely  to  cancel  the  deal  rather  than  the  two  parties   from  different  areas.    

 

The  corporate  governance  factors  are  included  in  the  regressions  of  Model  A2.  

The  increase  of  one  independent  shareholder  will  increase  the  probability  of   deal  completion  by  0.005.  While  after  including  all  the  other  factors  into  the   regression,   the   coefficient   would   slightly   change   to   0.0041   but   still   at   1%   significant   level.   Furthermore,   companies   with   a   larger   blockholder   are   also   positively   correlates   with   the   probability   of   deal   completion.   As   the   single   largest  shareholder  increase  by  one  percent  share,  the  likelihood  of  the  deal   completion   will   increase   by   0.0039.   The   result   is   also   slightly   changes   after   putting   all   the   other   governance   factors   into   the   regression,   and   the   significance   changed   from   1%   to   5%   level.   Moreover,   the   board   size   has   a   positive   relationship   with   the   deal   completion   as   well.   Both   of   the   two   regressions  showed  1%  significant  level  for  the  board  size.  The  last  regression   of  Model  A2  reflects  that  the  probability  of  cancelling  the  deal  would  decrease  

by  0.0266  as  the  board  size  increase  by  one  percent.  The  reason  might  be  that   the  shareholders  would  get  more  information  and  have  more  social  ties  as  the  

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board   becomes   larger.   Thus,   they   would   be   more   determined   to   face   the   various  market  reactions  and  continue  the  acquisition  procedure.  In  addition,   the   CEO-­‐Chairman   duality   shows   positive   correlations   with   the   deal   probability   at   5%   significant   level   in   both   of   the   two   regressions,   which   reflects   that   the   power   concentration   would   also   decrease   the   cancelling   probabilities.  Unlike  all  the  governance  factors  that  illustrated  above,  E-­‐index   shows   positive   relationship   with   the   deal   completion   probability   at   1%   significant  level  in  the  individual  test  but  at  a  low  significance  level  in  the  total   one.    

 

4.1.2  Part  two:  CEO  tenure  after  the  acquisition    

To   better   describe   the   data   for   further   regressions,   Table   3   summaries   the   cumulated   abnormal   returns   for   three-­‐day   and   five-­‐day   event   windows.   Comparing   to   the   CARs   around   announcement   date   with   a   five-­‐day   event   window,  the  three-­‐day  event  widow  has  lower  CARs.  It  is  probably  due  to  the   various  strong  market  reactions  close  to  the  announcement  date  would  lead   to  a  greater  difference  with  the  market  predictions.  The  mean  of  CARs  (-­‐3,+3)   sample   is   -­‐0.698,   which   is   0.367   lower   than   CARs   (-­‐5,+5)   event   time.   Moreover,   the   mean   of   CARs   (-­‐5,+5)   is   -­‐0.381,   which   reflects   that   the   cumulated   abnormal   return   in   the   United   States   close   to   the   announcement   date  might  increase  shortly  at  a  rapid  speed.    

 

In   order   to   illustrate   the   difference   between   the   bidders   who   complete   and  

Table  3

 

  Sample   Mean  (Std.  Dev.)   Median  

CAR(-­‐3,+3)   428   -­‐0.698  (0.190)   -­‐0.681  

CAR(-­‐5,+5)   419   -­‐0.381  (0.276)   -­‐0.305  

Table   2   presents   the   summary   of   cumulated   abnormal   returns   for   three-­‐day   and   five-­‐day  event  windows.  

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withdraw  the  deals   in  CEO  turnover  afterwards,  model  B  is  applied  into  the   test.  Table  4  shows  the  regression  results  of  CARs  on  CEO  turnovers  after  the   acquisitions.  In  addition,  the  different  deal  status  and  different  event  windows    

Table  4  

CEO  Turnover  

  Event  time(-­‐5,+5)   Event  time  (-­‐3,+3)  

  Deal=0   Deal=1   Deal=0   Deal=1  

CAR   -­‐0.0870   (-­‐0.96)   -­‐0.3092c   (-­‐1.88)   -­‐0.2991   (-­‐1.50)   -­‐0.3324   (-­‐1.76)   Indep_board   -­‐0.0136   (-­‐1.74)   -­‐0.0137c   (-­‐1.83)   -­‐0.0133b   (-­‐2.09)   -­‐0.0132c   (-­‐1.90)   Sing_largest   0.0023   (0.29)   0.0035   (0.82)   -­‐0.0031   (-­‐0.42)   -­‐0.1033c   (-­‐1.94)   Boardsize   -­‐0.0238   (-­‐0.98)   -­‐0.0242   (-­‐1.02)   -­‐0.0142   (-­‐0.85)   -­‐0.0106   (-­‐0.99)   Eindex   -­‐0.0034   (-­‐0.31)     -­‐0.0031   (-­‐0.70)   -­‐0.0431   (-­‐1.07)   -­‐0.0405   (-­‐1.55)   Duality   0.1130   (1.42)   -­‐0.1043c   (-­‐1.80)   0.0499   (1.60)   -­‐0.0349   (-­‐0.65)   DEratio   0.0142   (0.65)   0.0303   (1.43)   0.0085   (0.60)   0.0099   (1.41)   Tobinq   0.0934   (1.41)   0.0921   (1.67)   0.0921   (1.60)   0.0492c   (1.83)   Ceo_age   -­‐0.0402a   (-­‐2.66)   -­‐0.0402a   (-­‐3.06)   -­‐0.0512a   (3.61)   -­‐0.0464a   (-­‐3.88)   Ceo_share   -­‐0.0074   (-­‐0.22)   -­‐0.0079   (-­‐0.70)   -­‐0.0192   (-­‐1.09)   0.0193   (0.58)   Firm_age   0.0019   (1.57)   0.0025c   (1.85)   0.0015   (1.66)   0.0011c   (1.89)   Firm_size   0.0113   (0.44)   0.0108   (0.38)   0.0029   (0.69)   0.0038   (0.97)   Industry   -­‐0.2144   (-­‐1.41)   -­‐0.2143   (-­‐1.54)   -­‐0.0733   (-­‐1.54)   -­‐0.0699   (-­‐1.21)   Observation   90   329   93   335   Overall  R2   0.1683   0.1042   0.1805   0.0998  

Table   2   presents   the   difference   between   the   bidders   who   complete   and   withdraw  the  deals  in  CEO  turnover  afterwards.  Two  CARs  event  windows   are   individually   regressed   with   the   CEO   turnover   using   Model   B.   The   Deal   takes  1  if  complete  and  0  if  withdraw.  Significant  levels  are  indicated  by  a,  b   and  c  for  1%,  5%  and  10%  respectively.  

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are  individually  presented.  In  general,  the  CARs  are  negatively  correlated  with   the   CEO   turnover.   In   CARs   (-­‐5,   +5)   event   window,   the   cumulated   abnormal   return  is  negatively  correlated  with  the  CEO  turnover  at  10%  significant  level     in   completed   deals.   It   is   less   significant   in   CARs   (-­‐3,   +3)   comparing   to   the   five-­‐day   event   window   in   completed   deals.   The   increase   in   cumulated   abnormal  return  would  lead  to  a  lower  chance  of  CEO  turnover  in  completed   deals  generally,  but  the  relationship  is  relatively  weak  in  the  cancelled  deals.   Thus,   the   study   will   only   focus   on   the   completed   deals   in   following   regressions.  

 

Besides   of   cumulated   abnormal   return,   the   percentage   of   independent   shareholders  also  play  an  important  role  in  effecting  the  CEO  turnover.  Except   for   the   cancelled   deals   in   CARs   (-­‐5,   +5),   all   the   other   three   lines   show   significant   negatively   relationship   with   the   turnover.   It   shows   that   with   an   increase   of   one   independent   shareholder,   the   turnover   would   correspondingly   decrease.   Moreover,   it   means   that   as   the   number   of   independent   shareholder   increases,   the   board   monitoring   power   would   increase  as  well  (Fama  and  Jensen,  1983).  As  a  result  of  a  public  monitoring,   the   CEO   has   to   be   extremely   careful   at   every   decision   and   avoid   of   making   mistakes.   At   the   meantime,   the   board   with   more   independent   shareholders   might   also   increase   the   social   ties   of   the   corporation.   As   being   mentioned   before,   the   stronger   social   ties   might   get   hold   of   larger   information,   which   would   lead   to   a   less   probability   of   cancelling   the   deal   (Chikh   and   Filbien,   2011).  Furthermore,  the  single  largest  ownership  from  the  completed  deal  in   CARs   (-­‐3,   +3)   also   shows   a   negative   relationship   with   turnover   at   10%   significance.   It   means   that   as   the   corporate   shareholding   gets   more   centralized,   the   single   largest   shareholder   has   a   larger   power   in   decision   making   and   monitoring,   which   would   also   lead   to   a   lower   CEO   turnover   probability   as   the   independent   shareholder   increases.   As   we   can   see   from   Table   4,   the   cancelled   deals   show   less   significant   relationship   between  

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acquisition  performance  and  CEO  turnover.  Thus,  the  study  will  focus  on  the   completed  deals  in  further  analysis.  

 

Table   5   presents   a   summary   of   sample   tenure   before   (Ten0)   and   after   the  

acquisition(Ten1:  till  Jan  2015)  only  for  completed  deals.  With  an  average  of  

34  CEO  samples  in  each  of  the  ten  years,  the  mean  of  CEO  tenure  before  the   acquisition   is   approximately   seven   years   in   the   sample.   The   minimum   CEO   tenure  before  acquisition  is  less  than  three  months  while  the  largest  is  about   35   years.   In   addition,   the   standard   deviation   of   the   Ten0   mean   has   a   low  

confidence   level   due   to   the   large   variance   CEO   tenure   of   each   company.   By   comparing  the  data  year  by  year,  it  could  kindly  reduce  the  year  effect  that  the   acquisitions  took  place  in  different  years.  However,  the  Ten1  and  Ten0  are  still  

incomparable   since   the   sample   period   are   too   close   from   now   and   there   is   very  few  years  to  be  counted  after  the  acquisition.  Nevertheless,  we  can  still   see  from  the  table  that  the  CEO  tenure  after  the  acquisition  is  relatively  less   than  the  years  before  the  acquisitions  by  computing  the  extreme  values  and   the  means.    

 

Table  5  

Year   Sample  

Ten0   Ten1  (till  Jan2015)  

Min   Max   Mean   Median   Min   Max   Mean   Median   2002   28   0.13   23.16   7.52   5.85   0.09   12.89   5.40   5.63   2003   36   0.56   35.63   7.45   6.07   0.03   11.80   6.10   5.96   2004   32   0.02   31.11   8.23   6.22   0.19   10.95   6.55   6.77   2005   38   0.68   29.97   5.55   5.10   0.07   9.94   5.62   5.49   2006   35   0.31   23.92   5.24   4.90   0.13   8.95   5.56   6.43   2007   40   0.16   22.87   5.84   3.55   0.10   7.90   5.47   6.42   2008   28   0.94   22.05   5.99   3.87   0.25   6.88   4.60   4.33   2009   36   0.04   32.39   7.48   5.48   0.37   5.93   4.69   4.88   2010   34   0.99   35.41   9.53   9.16   0.28   4.99   3.95   3.59   2011   35   0.17   23.02   9.01   8.14   0.15   3.93   2.92   3.23   Total   342   0.04   35.63   7.26   5.82        

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  25             Table  6     CEO  Turnover     CAR(-­‐3,  +3)   CAR(-­‐5,+5)  

  Model  B   Model  C   Model  D     Model  B   Model  C   Model  D  

CAR   -­‐0.3324c   (-­‐1.76)     -­‐0.2528   (-­‐1.65)   -­‐0.3092c   (-­‐1.88)     -­‐0.2407   (-­‐1.70)   Ten0       -­‐0.1170a   (-­‐2.93)   -­‐0.0912b   (-­‐2.01)     -­‐0.1291a   (-­‐3.02)   -­‐0.1037b   (-­‐2.38)   Indep_board   -­‐0.0132c   (-­‐1.90)   -­‐0.0111a   (-­‐3.89)   -­‐0.0140c   (-­‐1.80)   -­‐0.0137c   (-­‐1.83)   -­‐0.0111a   (-­‐4.40)   -­‐0.0154c   (-­‐1.71)   Sing_largest   -­‐0.1033c   (-­‐1.94)   -­‐0.0212b   (-­‐2.69)   -­‐0.0039c   (-­‐1.83)   0.0035   (0.82)   -­‐0.0811a   (-­‐3.06)   -­‐0.0085c   (-­‐1.78)   Boardsize   -­‐0.0106   (-­‐0.99)   -­‐0.0088   (-­‐1.47)   -­‐0.0093   (-­‐1,13)   -­‐0.0242   (-­‐1.02)   -­‐0.0081   (-­‐1.50)   -­‐0.0196   (-­‐0.86)   Eindex   -­‐0.0405   (-­‐1.55)   -­‐0.0007   (-­‐0.30)   -­‐0.0394   (-­‐1.21)   -­‐0.0031   (-­‐0.70)   -­‐0.0023   (-­‐0.17)   -­‐0.0061   (-­‐0.84)   Duality   -­‐0.0349   (-­‐0.65)   -­‐0.0231   (-­‐0.30)   -­‐0.0459   (-­‐0.77)   -­‐0.1043c   (-­‐1.80)   -­‐0.0339   (-­‐0.61)   -­‐0.0909   (-­‐1.34)   DEratio   0.0099   (1.41)   -­‐0.0100   (-­‐0.93)   0.0009   (0.90)   0.0303   (1.43)   -­‐0.0086   (-­‐0.99)   0.0191   (0.77)   Tobinq   0.0492c   (1.83)   0.0499b   (2.08)   0.0581c   (1.79)   0.0921   (1.67)   0.0499a   (2.55)   0.0659c   (1.81)   Ceo_age   -­‐0.0464a   (-­‐3.88)   -­‐0.0489a   (-­‐6.46)   -­‐0.0491a   (-­‐3.90)   -­‐0.0402a   (-­‐3.06)   -­‐0.0482a   (-­‐3.88)   -­‐0.0457a   (-­‐3.11)   Ceo_share   0.0193   (0.58)   0.0140   (0.37)   0.0205   (0.67)   -­‐0.0079   (-­‐0.70)   -­‐0.0126   (-­‐1.55)   -­‐0.0099   (-­‐0.92)   Firm_age   0.0011c   (1.89)   0.0003   (0.60)   0.0009c   (1.78)   0.0025c   (1.85)   0.0003   (0.73)   0.0008c   (1.82)   Firm_size   0.0038   (0.97)   -­‐0.0009   (-­‐0.33)   -­‐0.0059   (-­‐0.59)   0.0108   (0.38)   -­‐0.0029   (-­‐0.30)   0.0044   (0.49)   Industry   -­‐0.0699   (-­‐1.21)   -­‐0.0269   (-­‐1.00)   -­‐0.0412   (-­‐1.42)   -­‐0.2143   (-­‐1.54)   -­‐0.0405   (-­‐0.94)   -­‐0.1078   (-­‐1.33)   Observation   335   335   335   329   329   329   Overall  R2   0.0998   0.1101   0.1294   0.1040   0.1092   0.1309  

Table  6  presents  the  result  of  whether  the  CEO’s  term  of  office  before  the  acquisition  matters  for  the   CEO  turnover  afterwards  in  the  completed  deals.  Model  B  shows  the  relationship  between  the  CARs   and  the  forced  CEO  turnover  after  the  acquisition;  Model  C  shows  the  relationship  between  the  CEO   tenure  before  the  acquisition  and  the  forced  CEO  turnover  afterwards;  Model  D  regressed  CARs  and   CEO   tenure   together   with   the   forced   CEO   turnover   after   the   acquisition.   Significant   levels   are   indicated  by  a,  b  and  c  for  1%,  5%  and  10%  respectively.  

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