Soojin Yim, Business Economics PhD
Dissertation Chair: Professor Jeremy Stein
The Acquisitiveness of Youth: CEO Age and Acquisition Behavior
I document that firm acquisition propensity is decreasing in the age of the CEO: a firm with a CEO who is 20 years older is 30% less likely to announce an acquisition. I interpret this finding in terms of age-related variation in agency problems, and propose the compensation benefits of acquisitions as one possible mechanism. I demonstrate that acquisitions are accompanied by large, permanent increases in CEO compensation. Therefore CEOs face strong financial incentives to pursue acquisitions earlier in their careers. Consistent with this agency interpretation, the effect of age on acquisition propensity is attenuated in firms with strong governance. I examine alternative explanations and find that the age effect cannot be explained by the selection of young CEOs by acquisition-prone firms, nor by the causal effect of time-invariant CEO characteristics that may be cross-sectionally correlated with age. This paper highlights the role that CEO characteristics play in shaping corporate policies and the role that governance plays in restraining the influence of CEO incentives.
