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TAKEOVERS, MANAGEMENT REPLACEMENT, AND POST‐ACQUISITION OPERATING PERFORMANCE: SOME EVIDENCE FROM THE 1980s

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  • James D. Parrino
  • Robert S. Harris

Abstract

In their study of 197 U.S. takeovers from the 1980s, the authors find that the most important determinant of superior post‐merger operating performance is whether the target company's management is replaced or retained. When the target CEO is replaced, the post‐merger firm's annual cash flow returns outpace industry standards by 2 to 3%. In contrast, when target top management remains after the merger, operating returns do not exceed industry averages. The effect of management replacement is even more pronounced in those cases where the industry is consolidating. But, for those takeovers that are followed by significant investment (and thus presumably in growth industries), management replacement does not make a significant difference in post‐acquisition performance.

Suggested Citation

  • James D. Parrino & Robert S. Harris, 1999. "TAKEOVERS, MANAGEMENT REPLACEMENT, AND POST‐ACQUISITION OPERATING PERFORMANCE: SOME EVIDENCE FROM THE 1980s," Journal of Applied Corporate Finance, Morgan Stanley, vol. 11(4), pages 88-96, January.
    • Handle: RePEc:bla:jacrfn:v:11:y:1999:i:4:p:88-96
    DOI: 10.1111/j.1745-6622.1999.tb00518.x
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    Cited by:

    1. Liou, Ru-Shiun & Rao-Nicholson, Rekha, 2017. "Out of Africa: The role of institutional distance and host-home colonial tie in South African Firms’ post-acquisition performance in developed economies," International Business Review, Elsevier, vol. 26(6), pages 1184-1195.
    2. Shams, Syed M.M. & Gunasekarage, Abeyratna, 2016. "Operating performance following corporate acquisitions: Does the organisational form of the target matter?," Journal of Contemporary Accounting and Economics, Elsevier, vol. 12(1), pages 1-14.
    3. Shawn Bolouki & Peter Lewa, 2018. "An Exploratory Study of the Impact of Top Leadership on Effectiveness of Privatization of Hospitals Through Mergers and Acquisitions in Kenya," Journal of Management and Strategy, Journal of Management and Strategy, Sciedu Press, vol. 9(3), pages 54-87, August.
    4. Martynova, M. & Oosting, S. & Renneboog, L.D.R., 2006. "The Long-Term Operating Performance of European Mergers and Acquisitions," Other publications TiSEM b151ad28-feca-4664-a91d-8, Tilburg University, School of Economics and Management.
    5. Martynova, M. & Oosting, S. & Renneboog, L.D.R., 2006. "The Long-Term Operating Performance of European Mergers and Acquisitions," Discussion Paper 2006-111, Tilburg University, Center for Economic Research.
    6. repec:lic:licosd:31812 is not listed on IDEAS

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