CEO Power and the Market's Reaction to Mergers and Acquisitions: An Empirical Analysis of Listed Norwegian Firms

Abstract

In this paper, we investigate the effects of CEO power on the announcement returns of Norwegian acquiring firms that have announced mergers or acquisitions (M&As) in the period 2008-2017. Based on existing literature and studies on the field, we expect CEO power to affect M&A announcement returns negatively. Our findings, however, suggest that CEO power does not significantly affect the short-term M&A announcement returns of Norwegian acquiring firms. These results are robust across several different measures of CEO power. Our findings indicate that powerful CEOs do not necessarily use their power to put their own interests ahead of the interests of the shareholders when engaging in M&A deals. As there are very few studies focusing on the effects of CEO power on M&A returns, we contribute to extant literature by examining this topic further in a Norwegian setting and by using five different measures of CEO power in doing so. Our research further shows that both the percentage of CEO ownership and the debt ratio of the acquiring firm affect M&A announcement returns positively, which might suggest that decreased agency problems are associated with higher market returns related to M&A announcements.