Author ORCID Identifier

https://orcid.org/0000-0002-0286-0579

Semester

Spring

Date of Graduation

2023

Document Type

Dissertation

Degree Type

PhD

College

College of Business and Economics

Department

Finance

Committee Chair

Ann Marie Hibbert

Committee Member

Alexander Kurov

Committee Member

Costanza Meneghetti

Committee Member

Naomi E. Boyd

Committee Member

Ruiyuan Chen

Abstract

This dissertation is composed of three distinct chapters, all of which revolve around the core subject of how CEO background attributes impact a company’s investment decisions and the resulting corporate outcomes. The first chapter entitled, “CEO International Background and Cross-Border Mergers and Acquisitions” investigates whether having a CEO with an international background affects U.S. firms’ cross-border merger and acquisition (M&A) activities. By defining international background as having either non-U.S. nationality, overseas education, or foreign work experience, this chapter provides robust evidence that when a CEO possesses these characteristics, the firm is more likely to acquire international targets, and these deals are more value-enhancing. Moreover, when the firm’s CEO has all of these international characteristics (compared to just one), both the likelihood of cross-border deals and announcement returns increase. The observed gains are related, at least in part, to CEOs with this background being associated with lower acquisition premia and mitigating the negative impact of paying these deals with equity.

The second chapter entitled, “CEO Cultural Legacy and Corporate Investment Efficiency” examines the role of CEO cultural legacy on corporate investment efficiency. By associating nationalities with Hofstede cultural dimensions, this chapter assesses CEO risk propensity and explores the influence of uncertainty avoidance, long-term orientation, individualism, masculinity, indulgence, and power distance on over- and under-investment outcomes. The findings reveal that CEOs hailing from high levels of uncertainty-averse and long-term-oriented cultures exhibit a negative association with investment inefficiency and a reduction in overinvestment. Conversely, CEOs originating from high levels of individualistic, masculine, indulgent, and power-distant cultures demonstrate a positive association with investment inefficiency and a propensity to overinvest. The significance of CEO culture-related decisions is more pronounced under conditions of low external monitoring. The results provide empirical evidence supporting the inheritance of risk preferences and their ramifications on corporate decision-making. Furthermore, the findings remain robust after accounting for the firm and other CEO attributes, and alternative definitions of risk, and survive several robustness and endogeneity tests.

The final chapter entitled, “Foreign Experience of Acquirer CEOs and Shareholder Returns” presents empirical evidence demonstrating the implications of diverse CEO backgrounds in the context of domestic mergers and acquisitions (M&As). Findings suggest that U.S. firms led by CEOs possessing foreign experience realize significantly positive abnormal returns during the three-day window surrounding deal announcements. The market response is more favorable when CEOs possessing foreign experience pursue non-public targets, rather than their public counterparts, and when they pay particularly with stock. These executives tend to conduct larger deals, pay a lower premium, and the target firms experience a significant decline in cumulative abnormal returns. The findings demonstrate significant resistance to the “cream rises to the top” phenomenon and withstand several endogeneity and robustness tests. The combined evidence supports the hypothesis that foreign experience is associated with CEOs’ enhanced ability to identify high-synergy targets by mitigating potential home biases, and effectively negotiating and structuring domestic deals, resulting in an increase in bidder shareholder value.

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