M&A Transaction activity of a new CEO – Evidence from the United States

Abstract

This thesis analyses the M&A transaction activity of newly appointed Chief Executive Officers (CEOs) over the period from 1992 until 2017. The main focus of the thesis is on how soon after being appointed the CEOs start doing transactions. The underlying assumption is that the CEOs want to prove themselves for the different stakeholders and doing M&A transaction is one way to do it. This idea is based on the CEO overconfidence that the existing literature suggest being one of the key drivers for CEOs to do transactions.

The analysed data set between 1992 and 2017 consists of 8,232 CEOs of listed companies belonging to the S&P 1500 index and 10,522 transactions where the CEOs were involved. Out of all of the CEOs only 38.7% did at least one transaction over the observed period and 22.1% did the first transaction during the first or second year after being appointed to be the CEO. I created a logistic regression model to predict the probability of a transaction on three different scenarios. I analysed age, gender and tenure of a CEO as variables for the scenarios for ten different industry categories in order to better understand the drivers behind the transaction probabilities. On top of that I also calculated the R squared values for the models to analyse the accuracy of the models.

The empirical results of the thesis were little mixed. The main finding was that most of the CEOs actually don’t do any transactions while being a CEO, which contradicted the underlying idea of CEOs doing transactions. On the other hand, another key finding supported the hypothesis that majority of the CEOs who do a transaction, do it during the first two years of their tenure. The significance of the drivers behind the probabilities of M&A transaction were marginal and did not provide any meaningful insights if younger CEOs are more likely to do an early transaction or not.

All in all the findings of the thesis provided some new insights in M&A transaction activity of new CEOs and generated a few potential research ideas, for example including the work history of the CEOs as a variable, to further continue analysing the drivers behind the transaction activity.