The effect of target managerial ownership on the choice of acquisition financing and CEO job retention

In this paper we report on our investigation into whether the level of target managerial ownership has an effect on acquisition financing choice and target CEO job retention. We find that cash is more likely used to finance acquisitions when target management ownership levels are high. This result i...

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Bibliographic Details
Published in:	Review of quantitative finance and accounting 2013-04, Vol.40 (3), p.423-442
Main Authors:	Chang, Saeyoung, Mais, Eric, Sullivan, Michael J.
Format:	Article
Language:	eng
Subjects:	Accounting/Auditing Acquisitions Acquisitions & mergers Analysis Bargaining Bids Chief executive officers Corporate Finance Econometrics Economics and Finance Finance Financing Hypotheses Hypothesis Investigations Managerial skills Managers Operations Research/Decision Theory Original Research Ownership Retention Stockholders Stocks Studies Take-overs
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Summary:	In this paper we report on our investigation into whether the level of target managerial ownership has an effect on acquisition financing choice and target CEO job retention. We find that cash is more likely used to finance acquisitions when target management ownership levels are high. This result is consistent with a reduced monitoring hypothesis, where bidding firm managers seek to avoid the formation of a large block holder that may become an active monitor. We also find evidence specific only to stock deals that the probability of target CEO job retention increases with the level of target managerial ownership. In these cases, it appears the potential benefits associated with retaining certain target managers outweighs any negative consequence associated with creating a new monitoring block.
ISSN:	0924-865X 1573-7179