EFFECTS OF EXECUTIVE DEPARTURES ON THE PERFORMANCE OF ACQUIRED FIRMS

Using a sample of 96 acquisitions that occurred between 1980 and 1984, this study concludes that the departure of executives from acquired f irms is harmful to post acquisition performance. The negative effects of departures of the highest ranking executives (such as CEOs, Preside nts, and Chairmen) appear to be most severe. Acquisition relatedness, contrary to hypothesis, did not moderate the departure-performance rel ationship. Finally we find that providing one or more executives with top management team status in the newly combined firm leads to better postacquisition performance. Our study implies that executives from ac quired firms are an intrinsic component of the acquired firm's resourc e base, and that their retention is an important determinant of postac quisition performance. Our evidence supports the view that executives are important to postacquisition performance, and we believe that this evidence extends to other restructuring contexts as well.