The Young and the Restless: A Study of Age and Acquisition Propensity of CEOs of UK Firms

35 Pages Posted: 10 Nov 2016

See all articles by Tim Zhang

Tim Zhang

University of Wyoming, College of Business

Sanjiv Sabherwal

University of Texas at Arlington - Department of Finance and Real Estate

Narayanan Jayaraman

Georgia Institute of Technology - Scheller College of Business

Stephen P. Ferris

University of Missouri at Columbia - Department of Finance

Date Written: October/November 2016

Abstract

Using a large sample of CEOs of UK firms, we show that CEO age is a key determinant of acquisition activity. We find that younger CEOs are more likely to acquire another firm and spend more on large capital expenditures. We argue that while younger CEOs of both UK and US firms undertake more acquisitions than their older peers, their motivations for acquisitions might differ. We find that the stock market perceives acquisitions by younger CEOs to be of a higher quality. Following previous studies, we use CEO tenure as a proxy for reputation, and find that large acquisitions enhance CEO reputation, especially for younger CEOs. In contrast to the previous findings for CEOs of US firms, we determine that the compensation of CEOs in the UK does not increase after acquisitions. This absence of a compensation incentive for CEOs of UK firms is consistent with the idea that the UK compensation structure is more restrictive and has a smaller equity‐based component. Our evidence is also inconsistent with an overconfidence effect. Overall, our results provide consistent evidence of executive signaling by younger CEOs of UK firms eager to distinguish themselves.

Keywords: compensation

JEL Classification: CEO, age, merger, acquisition, signaling

Suggested Citation

Zhang, Tim and Sabherwal, Sanjiv and Jayaraman, Narayanan and Ferris, Stephen P., The Young and the Restless: A Study of Age and Acquisition Propensity of CEOs of UK Firms (October/November 2016). Journal of Business Finance & Accounting, Vol. 43, Issue 9-10, pp. 1385-1419, 2016, Available at SSRN: https://ssrn.com/abstract=2867183 or http://dx.doi.org/10.1111/jbfa.12216

Tim Zhang

University of Wyoming, College of Business

1000 E. University Avenue
Department 3275
Laramie, WY 82071
United States

Sanjiv Sabherwal (Contact Author)

University of Texas at Arlington - Department of Finance and Real Estate ( email )

Box 19449 UTA
Arlington, TX 76019
United States
817-272-3705 (Phone)
817-272-2252 (Fax)

Narayanan Jayaraman

Georgia Institute of Technology - Scheller College of Business ( email )

800 West Peachtree St.
Atlanta, GA 30308
United States
404-894-4389 (Phone)
404-894-6030 (Fax)

Stephen P. Ferris

University of Missouri at Columbia - Department of Finance ( email )

214 Middlebush Hall
Columbia, MO 65211
United States
573-882-6272 (Phone)
573-884-6296 (Fax)

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