How Foreign Experience of Acquirer CEOs Affects Shareholder Returns

In this piece, authors Busra Agcayazi and Kose John (CLS BlueSky Blog) discuss why acquiring firms often see little to no cumulative abnormal returns (CARs) around merger announcements and how a CEO’s foreign experience may help explain this puzzle. They construct a rigorous measure of “foreign experience” that requires a CEO to be a non-U.S. national, educated abroad, and to have prior professional experience outside the U.S. Only about 6 percent of CEOs in their sample meet this standard, but the results are striking: firms led by such CEOs achieve an average of 3.4 percentage points higher CARs during the three-day announcement window, a premium that is both statistically and economically meaningful.

The authors find that this performance advantage is especially strong in acquisitions of non-public firms, where limited transparency makes managerial skill and negotiation more critical. Foreign-experienced CEOs are more likely to use stock as payment, which can help align incentives when clear pricing signals are absent. Their international exposure seems to equip them with sharper judgment in assessing firm value, navigating institutional complexities, and structuring deals to enhance shareholder returns. These CEOs also negotiate lower acquisition premiums—saving an average of $32 million per deal—effectively capturing a greater share of the deal’s value for acquirers rather than targets.

To test whether these results might be driven by hidden factors such as innate ability or firm-specific advantages, the study includes robustness checks and placebo simulations. Even when controlling for unobserved variables and assigning foreign experience randomly, the performance effects persist, suggesting that international exposure itself plays a unique role in driving value. The authors conclude that CEO foreign experience is a meaningful determinant of M&A success, helping explain variation in acquirer returns that has long puzzled researchers…

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