Peer death affects CEO acquisition decisions

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If a CEO experiences the death of an independent director — whether at the CEO's own firm or at another firm at which the CEO serves as a board member — then he or she will engage in fewer acquisitions at his or her own company, especially if the death was sudden. That's according to newly published research from the Rice University Jones Graduate School of Business, Houston.

The reason may be that the death reminds the CEO of his or her own mortality, said the authors, writing in the Strategic Management Journal.

The researchers looked at a sample of large U.S. public firms and interviews with corporate CEOs and executive search consultants. They examined a sample of 296 independent director deaths, not including executive directors and independent board chairs, between 2002 and 2012. The investigators then classified the deaths into those that were sudden and those that were not.

Companies that experienced an independent director's death had almost 4% fewer acquisitions from the pre-death period to the post-death period than did firms that did not experience an independent director's death, according to the researchers. And the value of those acquisitions was 18% lower than the value of the acquisitions made by firms that did not experience an independent director's death.

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