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Diversifying or Focused Acquisition? The Influence of CEOs Temporal Focus on Corporate Acquisition Target Choice and the Moderating Role of Corporate Governance

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  • Nuru M. Ahmed

    (Business school, University of International Business and Economics, Chaoyang District, Beijing, P.R. China.)

  • Jianfeng Wu

    (Business school, University of International Business and Economics, Chaoyang District, Beijing, P.R. China)

Abstract

Why an acquiring firm chooses a target over others is a question yet not investigated well. Using a multi-dimensional temporal focus framework and upper echelon theory, we proposed that a firm’s choice for diversifying or focused acquisition is predicted by the CEO’s temporal focus. Furthermore, this link is contingent on corporate governance (compensation). The result from the analysis of 302 M&A deals from semiconductor and pharmaceutical industries revealed that CEOs with high future/present focus are more likely to make a diversifying acquisition than focus acquisition, while present-focused CEOs are more likely to make a focused acquisition over diversifying takeover. With a high stock option, future-focused CEOs will be more eager to make diversifying acquisitions, while past-focused CEOs’ likelihood of making a focused acquisition is reduced. Also, with high stock ownership, the interest of future and present-focused CEOs for diversifying takeover will reduce, while CEOs with high past focus will more tend to make a focused acquisition.

Suggested Citation

  • Nuru M. Ahmed & Jianfeng Wu, 2021. "Diversifying or Focused Acquisition? The Influence of CEOs Temporal Focus on Corporate Acquisition Target Choice and the Moderating Role of Corporate Governance," International Journal of Science and Business, IJSAB International, vol. 5(4), pages 80-104.
    • Handle: RePEc:aif:journl:v:5:y:2021:i:4:p:80-104
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