TY - JOUR
T1 - In the CEO We Trust: Negative Effects of Trust between the Board and the CEO
AU - Bae, Kee Hong
AU - El Ghoul, Sadok
AU - Gong, Zhaoran
AU - Guedhami, Omrane
N1 - Publisher Copyright:
© 2023 Cambridge University Press. All rights reserved.
PY - 2023/6
Y1 - 2023/6
N2 - In this study, we investigate whether and how trust between board members and the CEO (board–CEO trust) affects the performance of mergers and acquisitions. Contrary to conventional wisdom, we find that firms with higher levels of board–CEO trust exhibit poor M&A performance: High trust is associated with low acquisition announcement returns, long-term stock return performance, and post-deal operating performance. This negative effect of board–CEO trust is more pronounced among acquiring companies prone to agency problems. Our results suggest that, in the institutional setting of a board of directors, high trust can be too much of a good thing.
AB - In this study, we investigate whether and how trust between board members and the CEO (board–CEO trust) affects the performance of mergers and acquisitions. Contrary to conventional wisdom, we find that firms with higher levels of board–CEO trust exhibit poor M&A performance: High trust is associated with low acquisition announcement returns, long-term stock return performance, and post-deal operating performance. This negative effect of board–CEO trust is more pronounced among acquiring companies prone to agency problems. Our results suggest that, in the institutional setting of a board of directors, high trust can be too much of a good thing.
UR - http://www.scopus.com/inward/record.url?scp=85162127692&partnerID=8YFLogxK
U2 - 10.1017/S0022109023000790
DO - 10.1017/S0022109023000790
M3 - Article
AN - SCOPUS:85162127692
SN - 0022-1090
VL - 59
SP - 2899
EP - 2932
JO - Journal of Financial and Quantitative Analysis
JF - Journal of Financial and Quantitative Analysis
IS - 6
ER -