Foreign-born CEOs more likely to acquire assets across borders - particularly in their home countries: Study
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Published: July 22, 2024
CEOs who have moved away from their country of origin are more likely to make international acquisitions, with a preference for targets in their birth country, a new study by researchers at the University of Toronto shows.
Using a sample of nearly 1,300 corporate acquisitions over a 14-year period, Ron Shalev, an associate professor of accounting at 缅北强奸 Scarborough who is cross-appointed to the Rotman School of Management, and his co-authors compared acquisitions, financial and other corporate data with biographical information on the companies鈥 CEOs at the time of the purchases.
鈥淔oreign-born CEOs are taking an increasing leadership role in the corporate world,鈥 says Shalev of the research. 鈥淚n our sample, 24 per cent of the acquiring companies have foreign-born CEOs.鈥
The study, , was co-authored by Milan-based researchers Antonio Marra of the Universit脿 Bocconi and Angela Pettinicchio of Universit脿 Cattolica del Sacro Cuore and SDA Bocconi School of Management.
After examining the data, Shalev and his colleagues found that foreign-born CEOs were 43 per cent more likely than domestic-born ones to acquire across borders 鈥 and that the phenomenon may be explained by a preference for acquiring in the countries of their birth. When considering all potential international targets that might be on the CEO鈥檚 radar, the researchers found that foreign-born CEOs were 17 times more likely to go after a buy in their country of origin versus another cross-border acquisition.
That difference was explained by the CEO having a leg up by knowing more about the country and having local connections. They are also driven by a desire to 鈥済ive back鈥 to the place where they came from, the researchers say.
The researchers also found that foreign-born CEOs were more than twice as likely to make an acquisition in a former colonizer of their birth country as they were to choose any other potential international target. 鈥淭he idea is that if a CEO wants to bring pride to the birth country, she would acquire targets in the country that colonized it in the past,鈥 says Shalev.
How are companies involved affected by CEOs tendency to acquire targets in their birth country? The acquiring company鈥檚 shareholders see a 1.3 per cent difference in excess returns on acquisitions in the CEO鈥檚 birth country, while shareholders of the target company enjoy a 2.9 per cent excess premium due to the purchase.
鈥淭his is not something that should prevent the hiring of a CEO,鈥 Shalev says of the findings.
Instead, he says it鈥檚 simply an aspect a company鈥檚 board should be aware of and, if the CEO has a target in mind in their birth country, to take a harder look at the proposal. 鈥淚n many cases these acquisitions will be good for the acquirer firm 鈥 but not always.鈥