CEO Home Bias and Corporate Acquisitions

Abstract

We find that CEOs are significantly more likely to purchase cross-state targets from their birth state, consistent with either informational advantages or familiarity bias. Evidence from bidder announcement returns supports the latter view. Acquirer returns are significantly lower for CEO home state acquisitions, and the relation is robust to controls for firm and industry characteristics. The negative announcement effect is stronger for poorly-governed firms, when the target is located further away, and when the CEO has a deeper birth-state connection. CEOs’ post-acquisition trading behavior also supports a familiarity bias interpretation. Our findings suggest CEO home bias influences firm investment.