Article | Management Science | December 2011

How Do Acquirers Retain Successful Target CEOs? The Role of Governance

by Julie Wulf and Harbir Singh


The resource-based view argues that acquisitions can build competitive advantage partially through retention of valuable human capital of the target firm. However, making commitments to retain and motivate successful top managers is a challenge when contracts are not enforceable. Investigating the conditions under which target CEOs are retained in a sample of mergers in the 1990s, we find greater retention of better-performing and higher-paid CEOs-both measures of valuable human capital. We also show that the performance-retention link is stronger when the acquirer's governance provisions support managers and when the acquirer's CEO owns more equity. While it is not common for acquirers to retain target CEOs, we argue that they are more likely to do so when their governance environment maintains managerial discretion. Based on a joint analysis of retention and governance, our findings are largely consistent with the managerial human capital explanation of retention.

Keywords: Capital; Mergers and Acquisitions; Acquisition; Equity; Management Analysis, Tools, and Techniques; Contracts; Performance; Governance; Legal Services Industry;


Wulf, Julie, and Harbir Singh. "How Do Acquirers Retain Successful Target CEOs? The Role of Governance." Management Science 57, no. 12 (December 2011): 2101–2114.