DO THEY WALK THE TALK? GAUGING ACQUIRING CEO AND DIRECTOR CONFIDENCE IN THE VALUE CREATION POTENTIAL OF ANNOUNCED ACQUISITIONS.

CHIEF executive officers; CORPORATE directors; CONFIDENCE; VALUE creation; MERGERS & acquisitions; LONG run (Economics); STOCK prices; OPTIONS (Finance); MOTIVATION (Psychology); EXECUTIVE compensation; DESCRIPTIVE statistics; FINANCIAL market reaction

We explore whether acquiring CEOs and directors act consistently with the idea that their newly announced acquisitions will increase long-term firm value. Specifically, we examine postannouncement adjustments to CEOs' equity-based holdings and find acquiring CEOs tend to exercise options and sell firm stock following acquisition announcements. Moreover, positive short-term market performance exacerbates this effect. Further, we find directors tend to grant their acquiring CEOs stock options, after acquisition announcement, presumably to more tightly align CEO-shareholder interests. These findings suggest that when CEOs and directors manage acquiring CEOs' equity-based holdings, they do not appear to anticipate long-term value creation from their acquisitions. [ABSTRACT FROM AUTHOR]

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