The impact of target CEO celebrity on M&A premiums

Abstract

We examine the influence of target‐CEO celebrity on the premium paid by bidders using information asymmetry, uncertainty, and resource‐based‐view perspectives. Studies suggest that CEOs and their firms can suffer from a “burden of celebrity” if they fail to meet heightened performance expectations. We hypothesize that bidders acquire targets led by celebrity CEOs (those who garner significant and widespread media attention) with lower premiums because bidders react to market overvaluation. We also argue that celebrity CEOs who leave post‐merger drive premiums even lower because they take their potential integration value with them. A six‐year sample of US‐based M&A transactions supports our hypotheses.

Celebrity CEOs and firm innovation investment: Evidence from Chinese-listed companies

“…Some previous studies have argued that the celebrity status of CEOs have a positive impact on firms by attracting social attention and enhancing the prestige of organizations, leading to greater investor confidence, the acquisition of extra resources, and an increase in stock prices ( Fralich and Papadopoulos, 2020 ; Lee et al, 2020 ; Kim and Lee, 2022 ). Celebrity CEOs also result in distinctive firm decisions and behaviors, including managerial risk-taking, acquisition premiums, and corporate social responsibility, which influence firm performance ( Cho et al, 2016 ; Shi et al, 2017 ; Wei et al, 2018 ).…”

“…However, the downside of such attribution is that stakeholders and the media will routinely undeservedly blame celebrity CEO for failure and declining performance ( Hayward et al, 2004 ; Graffin et al, 2008 ). Therefore, most celebrity CEOs carry a psychological burden in their role since the public and stakeholders invariably put pressure and expectation on them to continuously improve firm performance ( Wade et al, 2006 ; Fralich and Papadopoulos, 2020 ). In particular, the greater the celebrity position of a CEO, the more closely the CEO is related to firm performance ( Hayward et al, 2004 ; Graffin et al, 2008 ).…”

Do takeover premiums hurt post-acquisition performance? – Marketing capabilities matter!

“…The prevalence of the agency problem in the decision-making process for takeover premiums is rooted in the fact that managerial compensations, benefits, and bonuses are often linked to the size of the firm rather than its revenue and profits. This creates a potent incentive for managers to prioritize expanding the firm’s size, even if it comes at a substantial cost (Fralich and Papadopoulos, 2020; Harford et al ., 2011). As a result, numerous acquisitions with imprudent takeover premiums occur, potentially exerting a detrimental impact on performance.…”