Do the buy it?

Abstract

An increasingly popular tool for firms seeking growth, is to merge with or acquire other firms. So popular that an entire industry of advisers has evolved to provide guidance in the mergers and acquisitions (M&A) process. The most prominent are investment banks (IB). However, an overwhelming amount of research have shown that the M&A that firms choose to pursue on average destroy value. It is therefore in the interest of both investors and management boards to know whether chief executive officers CEOs with IB experience will do more or better M&A when hiring. To examine the effect of IB experience, a model is developed and estimated on a sample of Swedish and Norwegian large cap firms. From these estimations, we find that the odds of a firm with a CEO who has IB experience doing M&A is 46% lower than if the CEO doesn’t have IB-experience. However, no conclusions could be drawn on the effects on the quality of the M&A they pursue