Published online by Cambridge University Press: 08 October 2018
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.
We thank Byoung-Hyoun Hwang, Zoran Ivkovich, Jongsub Lee, Erik Lie, Vojislav (Max) Maksimovic, Paul Malatesta (the editor), Stephen McKeon (the referee), Yihui Pan, Jay Ritter, Tao Shu, Brian Wolfe, Fei Xie, seminar participants at the Australian National University, Cornell University finance area brown bag, Iowa State University, SUNY Binghamton, the University of Connecticut, the University of Florida, Wilfrid Laurier University, and Xiamen University, and conference participants at the 2017 China International Conference in Finance for helpful comments and suggestions. We thank Meiling Jiang, Xunyi Wang, and Yizhe Zhang for their excellent research assistance.
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