Home, Sweet CEO's Home

In the intricate world of global business, a new paper by Antonio Marra (Bocconi Department of Accounting), Angela Pettinicchio (Università Cattolica), and Ron Shalev (University of Toronto) unveils that foreign-born CEOs exhibit a marked inclination towards cross-border acquisitions, particularly targeting firms in their countries of birth.

This tendency highlights a pronounced "home bias" in their acquisition choices, driven by two motives. First, the CEOs' intimate familiarity with their birth countries provides them with a unique information advantage. This insight equips them with a better understanding of the local business terrain, enabling them to navigate potential challenges.

Second, a desire to "give back" to their birth countries, measured by the involvement in birth country charities, propels these CEOs towards acquisitions in these nations. This emotional connection underscores the significance of personal and national ties in global business decisions.

Beyond the personal and emotional dimensions, the economic implications of this birth country bias in international acquisitions are profound. The research indicates that acquisitions in a CEO's birth country generally yield positive economic returns. On average, such acquisitions generate a 2.5% return (vs. 0.6% for all acquisitions) for the acquiring company's shareholders, a 7.1% (vs. 4.2%) premium for the target company's shareholders, and overall economic synergies of 6.5% (vs. 2.7%). These figures highlight the tangible economic benefits that can accrue from a CEO's personal connection to their birth country.

"It is a common view that the upper ranks of big firms are formed by ultra-rational individuals and that every choice they make is driven by data, and in many cases, it is true," says Professor Marra "but as we showed, there are instances in which they let their feelings interfere. It is important that investors also consider management characteristics - such as a CEO's birth country and their connections to it when it comes to investment decisions, as it might have a significant influence on how the firm is run."



The study further explores the broader implications of a CEO's affinity with their homeland. It reveals a tendency for companies to acquire targets in countries that once colonized the CEO's birth country. Companies are 2.45 times more likely to acquire a target in a country that is a former colonizer of the CEO's birth country, underscoring the interplay of history and modern business.

To ensure robustness against potential counterarguments, the research confirms that these acquisition patterns are not merely strategic but are significantly influenced by the CEO's preferences. The inclination to acquire in the CEO's birth country does not decrease with time after the CEO's appointment, reinforcing the role of personal preference over strategic planning.