CEO Demographics and Acquisitions: Network Effects of Educational and Functional Background

Abstract

This study investigates the effects of CEO educational and functional background on corporate acquisitions. Educational and work-related functional backgrounds are likely to come with interorganizational networks, networks that stay with individuals over long periods of time and have the potential to affect acquisitions. We argue that these networks constitute a form of interorganizational social capital, which directs acquisition activities along certain channels. Hypotheses are tested on 449 firms and their acquisitions during the 1986–1993 period. We find evidence that the networks that come with different CEO education and functional backgrounds are related to the type of acquisition completed by that CEO’s firm. Obtaining a degree from an elite school, for example, is related to engaging in acquisitions in unrelated industries. We also find functional background effects are strengthened under conditions of uncertainty and educational background effects are weakened with tenure. These results suggest the importance of personal networks in affecting major firm strategic actions, and highlight the contextual nature of acquisition decisions.