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CEO Initial Contract Duration and Corporate Acquisitions

Author

Listed:
  • Guoli Chen

    (INSEAD, Singapore 138676)

  • Ronghong Huang

    (The University of Queensland, UQ Business School, St. Lucia, Queensland 4072, Australia)

  • Shunji Mei

    (University of Auckland, Business School, Auckland 1010, New Zealand; University of Adelaide, Business School, Adelaide, South Australia 5000, Australia)

  • Kelvin Jui Keng Tan

    (The University of Queensland, UQ Business School, St. Lucia, Queensland 4072, Australia)

Abstract

We examine the organizational impact of CEO initial contract duration on corporate acquisitions. We argue that CEOs with shorter initial contract durations are more likely to experience time pressure. Consequently, they are more likely to manage time by engaging in corporate mergers and acquisitions (M&As) to achieve quick growth. In addition, these CEOs are more likely to engage in straightforward deals, acquiring targets that are private, divested, related, small, and using cash payment, because these types of transactions are quicker to complete, carry less risk, and generally come with good performance prospects. Using a sample of firms that underwent new CEO appointments between 1990 and 2017 and detailed employment contract data collected from SEC filings, we find strong support for our hypotheses. In addition, we apply UK corporate governance reform to CEO contract duration as an exogenous shock to show causal evidence of such relations. This study contributes to the literature on CEO contracts, corporate acquisitions, time management and strategic leadership.

Suggested Citation

  • Guoli Chen & Ronghong Huang & Shunji Mei & Kelvin Jui Keng Tan, 2025. "CEO Initial Contract Duration and Corporate Acquisitions," Organization Science, INFORMS, vol. 36(1), pages 65-87, January.
    • Handle: RePEc:inm:ororsc:v:36:y:2025:i:1:p:65-87
    DOI: 10.1287/orsc.2022.16493
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