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Atlanta Fed Working Papers


When Target CEOs Contract with Acquirers: Evidence from Bank Mergers and Acquisitions

Elijah Brewer III, William E. Jackson III, and Larry D. Wall
Working Paper 2006-28
December 2006

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This paper investigates the impact of the target chief executive officer’s (CEO) postmerger position on the purchase premium and target shareholders’ abnormal returns around the announcement of the deal in a sample of bank mergers during the period 1990–2004. We find evidence that the target shareholders’ returns are negatively related to the postmerger position of their CEO. However, these lower returns are not matched by higher returns to the acquirer’s shareholders, suggesting little or no wealth transfers. Additionally, our evidence suggests that the target CEO becoming a senior officer of the combined firm does not boost the overall value of the merger transaction.

JEL classification: G34, K22, J33

Key words: merger, acquisition, target CEO, corporate governance


The authors thank Oscar Cerda, Lee Cohen, Nisreen Darwish, Mennatallah Eltaki, Syed Hussain, and Jeffrey Rasmussen for excellent research assistance. They also thank George Benston, Robert Brooks, Douglas Cook, Benton Gup, Gary Hoover, Javier Suarez, and seminar participants at the Center for Monetary and Financial Studies, the University of North Carolina Law School, the Culverhouse College of Commerce at the University of Alabama, and the Federal Reserve Banks of Atlanta and Chicago for helpful comments. The views expressed here are the authors’ and not necessarily those of the Federal Reserve Banks of Atlanta or Chicago or the Federal Reserve System. Any remaining errors are the authors’ responsibility.

Please address questions regarding content to Elijah Brewer III, Finance Department, Suite 6100, DePaul University, 1 East Jackson Blvd., Chicago, IL 60604-1413, 312-362-5151, and the Federal Reserve Bank of Chicago, 230 South LaSalle Street, Chicago, IL 60604-1413, ebreweri@depaul.edu; William E. Jackson III, Research Department, Federal Reserve Bank of Atlanta, 1000 Peachtree Street, N.E., GA 303090-4470, 404-498-8937, william.jackson@atl.frb.org; or Larry D. Wall, Research Department, Federal Reserve Bank of Atlanta, 1000 Peachtree Street, N.E., Atlanta, GA 303090-4470, 404-498-8937, larry.wall@atl.frb.org.

For further information, contact the Public Affairs Department, Federal Reserve Bank of Atlanta, 1000 Peachtree Street, N.E., Atlanta, Georgia 30309-4470, 404-498-8020.