Recent research indicates that CEOs who have relocated from their origin display a notably heightened inclination towards acquiring international targets, particularly those in their birth country or nations with historical ties, such as former colonial powers.

Foreign-born CEOs, as highlighted by Professor Ron Shalev, an associate professor of accounting at the University of Toronto Scarborough and a joint appointment at U of T’s Rotman School of Management, are now playing a significant role in the global corporate landscape. Their influence is underscored by a study that examined nearly 1300 corporate acquisitions over a 14-year period, correlating acquisition data with comprehensive biographical details of the CEOs at the time of purchase.

The findings underscored that foreign-born CEOs exhibit a 43% greater propensity than their domestically-born counterparts to engage in cross-border acquisitions, driven significantly by their preference for targets within their country of birth. This preference translated into a staggering 17-fold increase in the likelihood of pursuing acquisitions in their native country over other international targets.

The research elucidates that an intimate knowledge of the country established local connections, and a solid motivation to contribute positively to their country of origin underpin this preference. This charitable drive extends beyond direct acquisitions in the birth country to encompass targets in countries that previously colonized their place of origin. For instance, an Indian-born CEO based abroad might consider acquiring a company in the United Kingdom, while a CEO from Greece might seek opportunities in Turkey.

Professor Shalev elaborates on the implications for the companies involved, noting that shareholders of acquiring firms tend to see a modest 1.3% increase in excess returns when acquisitions are made in the CEO’s birth country. Conversely, shareholders of the target companies enjoy a more substantial 2.9% excess premium following the acquisition.

Professor Shalev, despite the findings, advises companies not to view these tendencies as a deterrent to hiring foreign-born CEOs. Instead, he suggests that boards of directors should be aware of these inclinations and carefully evaluate proposals, particularly when the CEO targets acquisitions in their birth country. While such acquisitions often prove beneficial for the acquiring firm, Professor Shalev underscores that this may not always be the case, necessitating thorough consideration of each proposal on its own merits.

More information: Antonio Marra et al, Home Sweet Home: CEOs Acquiring Firms in Their Birth Countries, Journal of Accounting Research. DOI: 10.1111/1475-679X.12533

Journal information: Journal of Accounting Research Provided by University of Toronto Rotman School of Management