Antecedents of target CEO departure in acquisitions of small high-tech firms : The leading role of founder

Antecedents of target CEO departure in acquisitions of small high-tech firms: The leading role of founder By Keivan Aghasi PhD candidate at Department of Management, Economics and Industrial Engineering, Politecnico di Milano Italy (Sep 2011-Sep 2015) Contact: keivan.aghasi@polimi.it Acquisitions of small high-tech firms (target) by established companies (acquirer) have become important means for technology sourcing in the form of either artifacts including patents, prototypes and products or tacit knowledge embedded in human capital. Target? s top management team (TMT) in general and CEO specifically can be considered not only as regulator of knowledge transfer in post-acquisition period between two organizations but also as a source of human capital for the acquirer. State of The Art: Prior studies on the role of target CEO in post-acquisition, highlighted that acquirers can keep target CEO to act as soft coordinator to facilitate knowledge transfer, and to manage transitions in post-acquisition period (Graebner, 2004). Also literature reported that general managerial skills of target CEO, is valuable for an acquirer in unrelated acquisitions that information asymmetry is high (Datta & Grant, 1991). In acquisition of small high-tech firms, the CEO may possess specific human capital such as technological and industrial know-how that are also valuable for the acquirer (Wulf & Singh, 2011). Research Gap: CEO? s specific human capital in small high-tech firms is presumed valuable for the acquirer. No study has been conducted directly to empirically test the importance of this source of human capital so that acquirer decides to keep the target CEO in post-acquisition. Theoretical Argument: In This respect, we expect that if the CEO is also founder of the target, the human capital embedded in CEO such as social capital and technological know-how is valuable for the acquirer and therefore it decreases the likelihood of CEO departure in post-acquisition. Additionally, we argue that human capital embedded in founder CEO is so considerably important for the acquirer that, in the absence of information asymmetry or redundancy of soft coordinating role due to target? s structural integration as the choice of hard coordinating mechanism (Puranam, Singh & Chaudhuri, 2009), acquirer prefers to keep the CEO in post-acquisition. Method: The sample of this study consists of 366 acquisitions of small high-tech firms between 2001 and 2005 extracted from two renowned databases: Zephyr and SDC Platinum. The high-tech sectors were chosen based on the SIC code, namely: Drugs (283), Computer and office equipment (357), Electronic and other electrical equipment and components except computer equipment (36), Instruments (38) and Software programming (737). The sample consists of acquirers and targets headquartered either in USA or Europe. Necessary variables for empirical analysis are constructed directly from the aforementioned databases as well as other complementary databases such as Capital IQ, Lexis-Nexis and Orbis. Results: Structural integration increases the probability of CEO departure significantly in our sample which confirms the redundancy of soft coordination mechanism. The result of empirical also indicates that being founder decreases the probability of target? s CEO departure in post-acquisition. The interaction between structural integration and founder CEO in our sample reveals that CEO being a founder is so valuable for the acquirer that even if the acquirer decides to structurally integrate the firm, therefore ruling out soft coordination role, the acquirer prefers to keep the CEO. Additionally, the interaction between founder and product relatedness reveals that when the target CEO is also a founder of the company, it is more likely that the CEO stays afterwards even in highly related acquisitions with no information asymmetry. From this stand, our result suggests that CEO being a founder possesses certain human capital beyond the so called general managerial skills that encourages the acquirer to keep the target CEO in post-acquisition. References ? Datta, D. , & Grant, J., 1990. Relationships between type of acquisition, the autonomy given to the acquired firm, and acquisition process: An empirical analysis. Journal of Management 16(1):29-44. Graebner, M. (2004). Momentum and serendipity: How acquired leaders create value in the integration of technology firms. Strategic Management Journal, 751-777 ? Wulf, J., & Singh, H. (2011). How do acquirer retain successful target CEOs? The role of governance. Management Science , 57 (12), 2101-2114.