Skill In Corporate Acquisitions

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Executive Summary

The authors focus on persistence in the performance of corporate acquirers, finding significant evidence at the firm level. Persistence may be due to skill differences across either entire corporations or specific executives. They find persistence only when successive deals occur under the same CEO, not when the CEO changes. They conclude that skill differences in acquisitions reside with the CEO, not with the firm as a whole. These differences are economically meaningful. An acquirer that was successful in its last deal and kept its CEO earns, on average, 1.02% more on its next deal than does a previously-unsuccessful firm that also kept its CEO. This percentage difference is equivalent to a $175 million difference in value creation for the shareholders of an average-sized bidder.

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