How to implement a deal? The impact of CEO characteristics on synergy realization of European takeovers

Abstract

This paper explores whether CEO characteristics affect synergy realization for a sample of 231 intra-European takeovers of listed firms (1997–2007). We show that CEO incentive alignment and CEO skills indeed matter. The post-takeover performance improvement of the combined firm (EBITDA) is significantly larger if the CEO has an equity stake in the combined firm. This relation holds particularly for firms where the ownership structure is more dispersed. Longer tenured CEOs realize lower synergy value, consistent with the view that long-tenured CEOs may use their power in the acquiring firm to entrench themselves, while short-tenured CEOs have stronger career-based incentives to capture synergy value during the post-takeover period. We find no incremental impact of the CEO’s educational background on synergy realization, but we do find that CEOs with prior business experience in the target industry generate a larger post-takeover performance improvement of the combined firm.status: publishe