Despite decades of research on M&A outcomes, a puzzling question persists: Why do acquiring firms receive, on average, almost no cumulative abnormal returns around deal announcements (i.e., Betton, Eckbo, and Thorburn, 2008; Moeller, Schlingemann, and Stulz, 2004)? Numerous studies have focused on whether executives and other individuals who drive these deals are to blame. In a recent study, though, we investigate a significant factor that has often been overlooked: the foreign experience of an acquiring company’s CEO.

To distinguish between meaningful and superficial experience, we construct a “foreign experience” measure based on three criteria. The CEO must (1) be a non-U.S. national, (2) have received higher education outside the United States, and (3) possess prior professional work experience abroad. This measure ensures that the CEO’s exposure to foreign markets and institutions is substantive and multidimensional, not merely symbolic (Agcayazi, Hibbert, and Thibaut, 2024). Using this definition, approximately 6 percent of CEOs in our sample qualify.

Drawing on a dataset of over 14,000 U.S. transactions between 1996 and 2018, our analysis reveals that foreign-experienced CEOs create significantly more value for their shareholders when executing U.S. domestic mergers and acquisitions. Specifically, we document that firms led by such CEOs generate an average of 3.4 percentage points higher cumulative, abnormal returns (CARs) during the three-day announcement window. This performance premium is both statistically robust and economically meaningful.

The performance advantage of foreign-experienced CEOs is particularly pronounced in acquisitions of non-public targets, where limited transparency increases reliance on managerial judgment and negotiation skills. These deals require nuanced assessments of firm value and deal structuring, areas where international exposure may offer an edge by preparing CEOs to navigate regulatory complexity, handle information asymmetries, and negotiate across diverse institutional and cultural contexts.

We also find that these CEOs are more likely to use stock as the method of payment, a strategy often associated with uncertainty, tax deferral benefits, and shared post-merger ownership between acquirer and target stakeholders (Fuller, Netter, and Stegemoller, 2002). This approach is particularly relevant in non-public firm deals, where pricing signals are unavailable and incentive alignment becomes more important. Consistent with prior research, our findings show that stock-financed transactions in these contexts yield stronger bidder announcement returns. When foreign-experienced CEOs make this choice, the resulting cumulative announcement returns are especially pronounced, reflecting their ability to identify effective deal structures and implement them in ways that enhance shareholder value.

Foreign-experienced CEOs also tend to pay significantly lower acquisition premiums, on average, approximately $32 million less per deal, allowing the acquiring firm to retain a larger share of deal value. This is reflected in the lower abnormal returns realized by the firms they acquire. In typical M&A transactions, target shareholders receive substantial positive announcement returns, driven primarily by the premium offered and expectations of value creation (Jensen and Ruback, 1983; Betton, Eckbo, and Thorburn, 2008). However, in deals led by foreign-experienced CEOs, target CARs decline significantly, indicating that these executives negotiate more effectively and are better able to retain the resulting synergies for the benefit of their own shareholders.

One possible concern is that the relationship between CEO foreign experience and acquirer returns could be driven by uncontrolled factors that happen to align with both. These might include a CEO’s innate ability, firm-specific cultural advantages, or unique deal attributes not captured in our baseline models. We further consider the possibility that the effect is a statistical artifact rather than a systematic pattern. To address these concerns, we assess the sensitivity of our results to omitted variables and simulate counterfactual scenarios in which foreign experience is randomly assigned to CEOs. In both cases, the findings remain strong. Unobserved factors would need to exert an implausibly large influence to eliminate the observed effect, and the placebo simulations yield no comparable performance gains. These results reinforce the conclusion that foreign experience plays a distinct and meaningful role in M&A value creation, beyond what can be explained by other CEO, firm, or transaction characteristics.

To test whether the performance premium reflects international exposure, we consider the “cream rises to the top” hypothesis. This hypothesis implies that foreign-experienced CEOs may have reached the upper echelons of U.S. firms because they were already among the most capable individuals in their home countries. We first account for educational pedigree by including a top-school indicator in our baseline analysis, capturing whether a CEO attended a highly ranked institution in their country of origin. To further disentangle the effects of experience from education quality, we exclude all U.S.-educated CEOs and divide the remaining sample based on the strength of national education systems – separating countries with globally recognized institutions, such as Canada, Australia, and much of Europe, from those with less competitive systems. Within each group, we compare foreign-experienced CEOs with peers who were also educated abroad but do not meet all criteria for foreign experience. If selection bias through elite education were driving the effect, we would expect the performance premium to appear only in the high-quality group. Instead, we observe consistent outperformance in both subsets, suggesting that it is the international experience itself, not institutional prestige or inherent talent, that enhances strategic decision-making in M&A.

Why does foreign experience matter?

Our analysis suggests that the value of foreign experience stems from strategic objectivity and cognitive advantages. Executives with deeply rooted local ties often exhibit preferences for familiar targets or home-state deals, even when such choices are not economically optimal (Jiang, Qian, and Yonker, 2018). This tendency can reflect home bias, social allegiances, or aversion to unfamiliar structures.  By contrast, executives shaped by multiple cultural and regulatory contexts may mitigate home-bias and make more objective decisions, better assess valuation ambiguity, and negotiate across unfamiliar terrains with greater confidence and precision.

This perspective is especially evident in acquisitions of private companies, where valuation is ambiguous and traditional pricing signals are absent. In such deals, foreign-experienced CEOs are more likely to use stock rather than cash, a financing choice that enables risk-sharing and defers tax liabilities for the target. Investors appear to recognize the sophistication of this approach, as stock-financed acquisitions led by foreign-experienced CEOs are associated with significantly stronger announcement returns.

These findings carry practical implications for a broad set of stakeholders. For corporate boards, international exposure should be viewed as a material asset when evaluating executive candidates, particularly when selecting leaders for firms with acquisition-driven strategies. For institutional investors, it may serve as a meaningful signal of a CEO’s ability to navigate ambiguity, mitigate bias, and structure deals that deliver value. For policymakers, the study highlights how global talent can improve domestic capital allocation without requiring cross-border transactions.

More broadly, our findings contribute to the evolving conversation around executive diversity by highlighting the role of international experience as a meaningful and often overlooked factor. The ability to operate across institutional boundaries, adapt to unfamiliar settings, and make high-stakes decisions without favoring local companies translates into measurable economic outcomes. We hope these insights prompt renewed consideration of how international experience shapes not just who leads, but how effectively they lead.

REFERENCES

Agcayazi B., Hibbert A.M., Morillon T.G., 2024. CEO International Background and Cross-Border M&As. Journal of Banking Finance. 164:107129.

Betton, S., Eckbo, B. E., Thorburn, K. S. 2008. Corporate Takeovers. Handbook of Corporate Finance: Empirical Corporate Finance 2: 291–430.

Fuller, K., J. Netter, and M. Stegemoller. 2002. What Do Returns to Acquiring Firms Tell Us? Evidence from Firms that Make Many Acquisitions. The Journal of Finance 57(4): 1763-1793.

Jensen, M. C., Ruback, R. S. 1983. The Market for Corporate Control: The Scientific Evidence. Journal of Financial Economics, 11(1-4), 5-50.

Jiang, F., Qian, Y., Yonker, S.E., 2018. Hometown Biased Acquisitions Journal of Financial and Quantitative Analysis1-68.

Moeller, S.B., Schlingemann, F.P., Stulz, R.M., 2004. Firm size and the gains from acquisitions. Journal of Financial Economics 73, 201-228.

This post comes to us from professors Busra Agcayazi at Howard University School of Business and Kose John at New York University’s Leonard N. Stern School of Business. It is based on their recent article, “Foreign Experience of Acquirer CEOs and Shareholder Returns,” available here.