Independent director death and CEO acquisitiveness: Build an empire or pursue a quiet life?

• Date: 01 March 2017
• DOI: http://doi.org/10.1002/smj.2514
• Author: Yan Anthea Zhang,Wei Shi,Robert E. Hoskisson
• Published date: 01 March 2017

Strategic Management Journal

Strat. Mgmt. J.,38: 780–792 (2017)

Published online EarlyView 20 April 2016 in WileyOnline Library (wileyonlinelibrary.com) DOI: 10.1002/smj.2514

Received 4 March 2015;Final revision received 20 February2016

INDEPENDENT DIRECTOR DEATH AND CEO

ACQUISITIVENESS: BUILD AN EMPIRE OR PURSUE

A QUIET LIFE?

WEI SHI,1*ROBERT E. HOSKISSON,2and YAN ANTHEA ZHANG2

1Kelley School of Business-Indianapolis, Indiana University, Indianapolis, Indiana,

U.S.A.

2Jesse H. Jones Graduate School of Business, Rice University, Houston, Texas,

U.S.A.

Research summary: This study examines the relationshipbetween an independent director’s death

and CEO acquisitiveness. Using a sample of large U.S. public rms, we nd that CEOs who have

experienced an independent director’s death undertake fewer acquisitions in the post-director

death period, in particular fewer largeacquisitions. Our ndings are consistent with the prediction

of posttraumatic growth theory that mortality awareness can induce CEOs to reevaluate their

life priorities and reduce the importance of extrinsic goals in their decision making. This study

contributes to the strategicleadership literature by highlighting the inuence of the death of CEOs’

social peers on CEOs’ strategic decisions.

Managerial summary: Does the death of CEOs’ social peers inuence CEOs’ strategicdecisions?

We nd that CEOs who have experienced an independent director’s death engage in fewer

acquisitions in the post-director death period, in particular fewer large acquisitions. One likely

explanation for our ndings is that the death of an independent director may heighten CEOs’

mortality awareness, lead the CEOs to pursue a quieter life, and weaken their propensities for

undertaking decisions (i.e., acquisitions) that increase their compensation and social status.

Copyright © 2016 John Wiley & Sons, Ltd.

INTRODUCTION

The idea of death, the fear of it, haunts the

human animal like nothing else; it is a main-

spring of human activity— designed largely to

avoid the fatality of death, to overcome it by

denying in some way that it is the nal des-

tinyofman....Ofallthings that move man,

one of the principal ones is his terror of death.

(Becker, 1973: ix, 11)

Management and nance research has used

investors’ reactions to corporate leaders’ death

Keywords: strategic leadership; mergers and acquisitions;

CEOs; board of directors; social peers

*Correspondence to: Wei Shi. 801 W. Michigan St., BS4020

Indianapolis, IN 46202. E-mail: ws9@rice.edu

Copyright © 2016 John Wiley & Sons, Ltd.

announcements to capture the inuence of these

corporate leaders on rm governance and perfor-

mance (Johnson et al., 1985; Nguyen and Nielsen,

2010, 2014; Worrell etal., 1986). For example,

Worrell etal. (1986) analyze stock market reactions

to the announcements of top executive deaths and

nd negative reactions to CEO deaths but positive

reactions to board chairman deaths. Nguyen and

Nielsen (2010) nd that rms witness a signicant

drop in stock price upon independent director death

announcements, suggesting that independent direc-

tors play an important role in corporate governance.

Yet,the question of how corporate leaders’ deaths

may inuence their social peers’ decisions remains

unexplored. This is an important question because

death is an unavoidable condition, and reection

about death exists among all people and cultures.

Substantial research in social psychology has exam-

ined how the death of loved ones or social peers can