CEOs’ Military Experience, Agency Costs and Acquisition Decisions

We examine the effect of a CEO's military service on merger and acquisition decisions and outcomes. We find that acquirers led by CEOs with military backgrounds earn significantly higher abnormal stock returns at deal announcement, and these deals exhibit higher short-run and long-run synergies. In addition, we find that the presence of military CEO attenuates the negative effect of the poor corporate governance and excess cash on acquirer returns and short-run and long-run synergies. Overall, the evidence suggests that the value system developed in the military helps lower the agency costs in acquisitions and generates better acquisition outcomes. Taken together, our results suggest a channel through which the military background of a CEO might affect firm value