Hometown Biased Acquisitions

We show that chief executive officers (CEOs) exhibit a hometown bias in acquisitions. Firms are over twice as likely to acquire targets located in the states of their CEOs' childhood homes than similar targets domiciled elsewhere. Small, private home-state deals underperform other small, privat...

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Bibliographic Details
Published in:Journal of financial and quantitative analysis 2019-10, Vol.54 (5), p.2017-2051
Main Authors: Jiang, Feng, Qian, Yiming, Yonker, Scott E.
Format: Article
Language:English
Subjects:
Acquisition
Bias
Chief executive officers
Chief executives
Childhood
Consolidation
Corporate culture
Governance
Hypotheses
Institutional investments
Quantitative analysis
Regional stocks
Stockholders
Stocks
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Summary:We show that chief executive officers (CEOs) exhibit a hometown bias in acquisitions. Firms are over twice as likely to acquire targets located in the states of their CEOs' childhood homes than similar targets domiciled elsewhere. Small, private home-state deals underperform other small, private deals, and the bias is stronger when acquirer governance is lax, suggesting that CEOs acquire private home-state targets for their own benefits. In contrast, large, public home-state acquisitions are value enhancing. CEOs create value in public home-state acquisitions by avoiding extremely poor deals and through deals with higher synergies. Thus, both agency issues and hometown advantages drive home-state acquisitions.
ISSN:0022-1090
1756-6916
DOI:10.1017/S002210901800131X