CEO inside debt and the acquisition of private targets

Abstract

We find a strong positive association between the inside debt holdings (pension benefits and deferred compensation) of CEOs and announcement-period abnormal returns (CARs) of acquiring firms bidding for private targets. In addition, gains to acquirers with high inside debt persist for at least 3 years post-acquisition. Further analyses suggest that our results are largely driven by firms with lower levels of manager-shareholder agency conflicts as proxied by higher transparency in firm activities, presence of a less powerful CEO, or presence of stronger monitoring. Our results are robust to an array of sensitivity tests.