The Impact of CEO Home Bias on CSR, Earnings Management, and M&As

Abstract

This thesis investigates the effects of CEO home bias on corporate actions through three individual but interweaved essays. Specifically, the first essay studies whether social trust sourced from CEOs’ birthplaces affects corporate social responsibility decisions. Using a sample of US public firms, this essay finds that CEOs who manage firms headquartered in their birth states engage in more corporate social responsibility (CSR) activities. The results suggest that the idiosyncratic styles of managers impact corporate policies in the form of CSR decisions.
The second essay examines the effect of CEO home bias on accrual-based earnings management activities. Consistent with the view that home CEOs care more about their reputational capital, this essay finds that home CEOs are associated with significantly less accrual-based earnings management in their firms than non-home CEOs. Overall, the evidence suggests that CEO reputational capital affects earnings management activities within firms.
The third essay examines whether CEO home bias affects acquisition deterrence. This essay finds that firms with home CEOs are less likely to receive a takeover bid but more prone to adopt antitakeover provisions. This finding is consistent with the birthplace attachment explanation, which indicates CEOs’ reluctance to lose hometown jobs. This essay also shows that target firms with home CEOs are more likely to withdraw deals during the M&A process but are more willing to complete deals if the acquirer comes from the same state. The findings suggest that having a home CEO on board in the target firm acts as a “shield” against corporate takeovers.