How Do Elite-Educated CEOs Choose the M&A Payment Method? Evidence from Taiwan

Abstract

This paper examines the influence of CEOs with elite educations on the selection of payment methods in mergers and acquisitions (M&A). Analyzing a unique hand-collected dataset of M&A announcements involving Taiwanese acquirers during 2007–2020, we find that acquirers led by elite-educated CEOs are more likely to opt for cash financing in M&A transactions, a preference that persists even after conducting robustness tests and addressing endogeneity bias. Elite-educated CEOs with a Ph.D. or Master's degree in management- or finance-related disciplines are further found to exhibit a marked preference for cash payments, particularly when their firms face greater financial constraints. These observations can be attributed to potentially lower costs of external funding and might also reflect a perception among these CEOs that their firms are undervalued, as posited by both the financing proficiency hypothesis and the overconfidence trait hypothesis. By dissecting distinct implications of these two hypotheses for M&A valuation, we finally examine and show that acquirers led by elite-educated CEOs, particularly those choosing cash for M&A financing, experience superior post-M&A stock returns and operational performance. Our conclusion thus suggests that the financial acumen derived from elite education, rather than overconfidence, predominantly influences M&A payment methods and favorably impacts subsequent valuation outcomes. Overall, this study represents a pioneering effort to shed light on the often-overlooked role of top executives' elite educational backgrounds in strategic decision-making within the context of M&A.