THE (NON) IMPORTANCE OF CEO OWNERSHIP? AN AGENCY THEORETIC PERSPECTIVE ON M&A

Abstract

For decades, corporate acquisitions and subsequent shareholder returns have been studied, only to yield ambivalent results at best. As global M&A volumes have recently reached multi-trillion dollar levels, understanding the drivers of positive abnormal returns is now, more than ever, vital. In this thesis, we employ an agency-theoretic perspective on Swedish mergers and acquisitions by examining the effect of CEO ownership on shareholder returns. We argue that there is a positive non-linear relationship between CEO ownership and cumulative abnormal returns as a result of aligning interests and entrenchment by the CEO. We document positive and significant cumulative abnormal announcement returns of 1.3%, 1.5%, and 1.2% in the three event windows. We do not find convincing evidence for alignment of interests or entrenchment for the full sample. However, we find a persistent size effect. Large firms provide significantly lower cumulative abnormal returns to shareholders, and their cumulative abnormal returns increases with CEO ownership. Thus, we conclude that the effect of aligning interest holds, but only in the case of large firms.