The Role of Human Capital in Postacquisition CEO Departure

Corporate acquisitions are by their very nature disruptive events. However, when the top executives of an acquired, or target, firm leave the firm following an acquisition, disruption is exacerbated. However, it is not yet fully understood why some CEOs stay and others depart following a firm's acquisition. This study turned to human capital theory to advance understanding of postacquisition CEO departure. This study examined the postacquisition departure of target firms' CEOs and found support for the predictions of Becker's (1962) human capital theory. Firms and CEOs appear to weigh the costs of firm-specific CEO human capital investment against: 1. the window of time available for returns from that investment, and 2. the perceived value of those returns. CEO age and acquisition relatedness were both significantly related to the rate of CEO postacquisition departure.