Abstract
We show that CEOs exhibit home bias in acquisitions. Firms are over twice as likely to acquire targets located in their CEOs’ home states than similar targets domiciled elsewhere. Private home state deals under-perform other private deals and the bias is strongest when acquirer governance is lax, suggesting that CEOs acquire private targets for their own benefits. In contrast, public home-state acquisitions are value-enhancing. The results suggest CEOs create value in public home state acquisitions by avoiding extremely poor deals and through synergies driven by efficient integration. We conclude that both agency issues and hometown advantages drive home state acquisitions.
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