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CEO network centrality and merger performance

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  • El-Khatib, Rwan
  • Fogel, Kathy
  • Jandik, Tomas

Abstract

We study the effects on M&A outcomes of CEO network centrality, which measures the extent and strength of a CEO׳s personal connections. High network centrality can allow CEOs to efficiently gather and control private information, facilitating value-creating acquisition decisions. We show, however, that M&A deals initiated by high-centrality CEOs, in addition to being more frequent, carry greater value losses to both the acquirer and the combined entity than deals initiated by low-centrality CEOs. We also document that high-centrality CEOs are capable of avoiding the discipline of the markets for corporate control and the executive labor market, and that the mitigating effect of internal governance on CEO actions is limited. Our evidence suggests that corporate decisions can be influenced by a CEO׳s position in the social hierarchy, with high-centrality CEOs using their power and influence to increase entrenchment and reap private benefits.

Suggested Citation

  • El-Khatib, Rwan & Fogel, Kathy & Jandik, Tomas, 2015. "CEO network centrality and merger performance," Journal of Financial Economics, Elsevier, vol. 116(2), pages 349-382.
    • Handle: RePEc:eee:jfinec:v:116:y:2015:i:2:p:349-382
    DOI: 10.1016/j.jfineco.2015.01.001
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    More about this item

    Keywords

    Network centrality; Mergers and acquisitions; Corporate governance; Corporate control market; Managerial labor market;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation

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