An examination of the effectiveness of the chairman and chief executive officer in mergers and acquisitions in Australia

Mergers and acquisitions (M&A) continue to be value destroying for many acquiring firm shareholders, but value enhancing for the acquired firms' shareholders. Lack of continuity of tenure, agency problems and animal spirits in the acquiring and acquired firms may contribute to this loss of value. Best corporate governance practice proposes that the roles of Chairman and Chief Executive should be performed by different people and yet there is a limited amount of analysis linking these separate roles with firm performance. This study examines acquisitions in Australia between 1990 and 2006 and finds that the period of joint tenure, when the Chairman and CEO in the acquiring firm have been in their respective roles together, is a statistically significant contributor to acquiring firm shareholder value in M&A activity. A significantly negative correlation exists between CEO remuneration change and M&A outcomes indicating agency problems, whilst animal spirits are also in evidence around the time of an acquisition. A contribution to the debate about hubris in M&A suggests that narcissism may be more prevalent than hubris. Improvements in transparency for the remuneration and nominations committees are recommended to address some of the issues of corporate governance raised in this study.