1. The acquisitiveness of youth: CEO age and acquisition behavior
李贞如

2. This paper demonstrate that acquisitions are accompanied by large, permanent increases in CEO compensation, which create strong financial incentives for CEOs to pursue acquisitions earlier in their career. Accordingly, this paper document that a firm’s acquisition propensity is decreasing in the age of its CEO: a firm with a CEO who is 20 years older is 30% less likely to announce an acquisition. This negative effect of CEO age on acquisitions is strongest among firms where CEOs likely anticipate or can influence high post-acquisition compensation, and is absent for other investment decisions that are not rewarded with permanent compensation gains. The age effect cannot be explained by the selection of young CEOs by acquisition-prone firms, nor by a story of declining overconfidence with age. This paper underscores the relevance of CEO personal characteristics and CEO-level variation in agency problems for corporate decisions
Keywords: Corporate governance Mergers ；Acquisitions ；Agency problems ；CEO compensation
First of all, let's look at the abstract

3. 01 02 03 04 05 Introduction Data Positive Analysis Conclusion CONTENTS
Why should age matter? 03
Data 04
Positive Analysis 05
Conclusion
The paper consists of the following parts

4. 02
Why should age matter?
Compensation benefits of empire-building
a one-time action to expand the firm results in a future stream of compensation benefits, which can create strong financial incentives for CEOs to pursue acquisitions early in their career. 01
Career concerns and acquisition risk
if younger CEOs are more likely to be fired for bad
acquisitions, they will be less likely to pursue them. 02
Age-related CEO characteristics
The age-acquisition relation is more pronounced when the anticipated compensation benefits are large, and is absent when compensation benefits are absent or not persistent. 03

5. A B 03 Data sets sample construction DATA
(1)Paper collect data on M&A transactions from Thomson’s SDC Platinum database. (2)include acquisitions of both US and non-US targets, and match each deal to a firm-CEO- year observation using the announcement date of the acquisition.
(3)For each firm-CEO-year observation, paper code 5% Acquisition 1⁄4 1 if the CEO announces an acquisition in the firm-year whose deal value exceeds 5% of the firm’s market capitalization. This threshold reflects an effort to restrict the incidence of acquisitions to those that would plausibly require the CEO’s attention, or have the potential to directly affect compensation.
Data sets
(1)This paper require data on CEOs and the acquisitions that they announce.
(2)Using the start and end dates of tenure, the paper construct a panel of CEO service by firm spanning 1992–2007.
(3)To exclude interim CEOs and possible errors in misreported start and end dates of CEO tenure, it restrict the sample to CEOs whose total service period exceeds six months.
(4) To cleanly attribute acquisition activity to a single individual, it exclude periods of overlapping tenure by multiple CEOs.
(5)In addition, I further restrict the sample to firms with stock and financial data in The Center for Research in Security Prices (CRSP) and Compustat. A B
sample construction

6. 03
DATA
Panel A shows that the distribution of acquisition activity is quite skewed, with a little less than 28% of observations involved in acquisitions of any size.
Panel B reports statistics of firm and CEO characteristics.
Panel C shows that CEO age is highly correlated with log(assets), firm age, and CEO tenure. CEO compensation is highly correlated with log(assets) and firm age.

7. Acquisition incentives Determinants of CEO compensation04
Acquisition incentives 02 01
Acquisition incentives
Determinants of CEO compensation
Compensation benefits post-acquisition 03 04
Post-acquisition response by compensation type
Turnover post-acquisition
This section examines the incentives CEOs face to undertake acquisitions.
demonstrate that CEOs experience permanent and substantial gains in compensation following acquisitions. Further, young CEOs do not face offsetting risks, such as higher risk of being fired post- acquisition. Together, these create strong financial incentives for CEOs to pursue acquisitions earlier in their career.

8. 04 Acquisition incentives 4.1. Determinants of CEO compensation
Columns 1–4 examine the determinants of the level of CEO compensation.
(1)Column 1 affirms that firm size is an important determinant of CEO compensation.
(2)Column 2 shows that firm age is negatively associated with CEO compensation after controlling for firm size.
(3)Column 3 adds Fama-French 48 industry by year fixed effects and shows that the firm size effect remains important within industry-year.
(4)Column 4 shows that firms with high market-to-book ratios pay higher compensation..
(5)Column 5 shows that CEOs of larger firms with favorable stock performance enjoy larger compensation growth. However, ROA and firm age are negatively associated with compensation growth, likely reflecting the low-growth nature of mature, highly profitable companies.

9. 04 Acquisition incentives 4.2. Compensation benefits post-acquisition
the compensation increase shown in Panel B is likely awarded in response to completing acquisitions.

10. 04 Acquisition incentives
4.3. Post-acquisition response by compensation type
Panel C examines whether the increase in CEO compensation following acquisitions is driven by the salary, bonus, or equity-based components of compensation.
the equity-based component of compensation is the driver of the increase in total compensation following acquisitions.
Panel C examines whether the increase in CEO compensation following acquisitions is driven by the salary, bonus, or equity-based components of compensation.

11. 04 Acquisition incentives 4.4. Turnover post-acquisition
the analysis here explores whether young CEOs face acquisition-related termination risks that may undermine or offset the proposed compensation benefits.
The evidence suggests that the downside risk is limited. Acquisition activity is associated with lower CEO turnover.

12. 05 CEO age and acquisition propensity
5.1. Basic age-acquisition relation
Table 4 examines the relation between CEO age and firm acquisition propensity.
CEO tenure is positively correlated with age but potentially has the opposite effect on acquisition activity: if acquisitions are risky and tenure proxies for CEO ability or entrenchment, tenured CEOs will be more likely to undertake acquisitions.

13. 05 CEO age and acquisition propensity
5.2. Nonlinear controls and effect of CEO tenure
In Panel A, we can find that it not driven by misspecification of the effect of tenure, firm age, or firm size on acquisition propensity.
Panel B shows that the effect of tenure is indeed nonlinear.
once a CEO is entrenched, additional years of tenure are unimportant. Despite the correlation between age and tenure, an additional year of each will not have uniform effects on acquisition propensity. In particular, for the set of long-tenured CEOs, the effect on acquisition propensity of an additional year on the job will likely largely reflect the effect of age, and not of tenure.

14. 06
Additional evidence
Mediators of the age-acquisition relation
CEO age and alternative investment decisions
6.1
6.2

15. 06 Additional evidence 6.1 Mediators of the age-acquisition relation
Consistent with this hypothesis, Table 7 shows that the age-acquisition relation is largely driven by CEOs who anticipate the biggest compensation gains and have the greatest influence over compensation.

16. 06 Additional evidence 6.1 Mediators of the age-acquisition relation
Consistent with this hypothesis, Table 7 shows that the age-acquisition relation is largely driven by CEOs who anticipate the biggest compensation gains and have the greatest influence over compensation.

17. 07 7. Announcement day returns
Table 9 examines the announcement day returns of acquisitions pursued by young versus old CEOs. Observations are at the deal-level, and paper consider only deals that exceed 5% of the firm’s market capitalization. Announcement day returns are the three-day cumulative returns surrounding the announcement date. Young CEO is a binary variable that equals one for CEOs in the lowest age tercile, of 27– 52 years.
Overall, the paper find evidence consistent with the hypothesis that young CEOs who anticipate greater compensation benefits of acquisitions are likely to pursue more and worse quality acquisitions.

18. 08 Alternative explanations 8.1. Selection by acquisitive firms
8.2. Omitted time-invariant CEO characteristics
8.3. CEO wealth and incentives
8.4. CEO overconfidence

19. Conclusion
This paper demonstrates that acquisitions are associated with large, permanent increases in CEO compensation, which give rise to declining incentives to pursue acquisitions over a CEO’s career horizon.
As a result, the age of the CEO becomes an important determinant of firm acquisition activity
However, the paper show that with respect to one dimension of their job—undertaking acquisitions— prevailing compensation practices create stronger incentives for younger CEOs than for older ones. These incentives can lead to overinvestment and value destruction. Because a set of compensation can present different incentives for different CEOs, boards need to tailor compensation incentives to the person, not just the firm.

20. THANK YOU