Who Initiates Takeovers?

Who initiates a takeover process determines whether observed firm-and chief executive officer (CEO) characteristics reflect participation in a transaction or the endogenous decision to start one. We hand-classify initiation for 4,636 U.S. takeover bids over 1996-2016, the largest such sample to date, and compare targets and public acquirers with characteristics of matched non-merging firms. Targets initiate as much as 55% of classified deal processes, either alone (43%) or jointly (12%). Conditioning on initiation changes the interpretation of prominent CEO-age effects reported in the literature: Retirement-age target CEOs are no more likely to initiate a sale; instead, bidders disproportionately approach firms led by CEOs nearing retirement. Moreover, young acquirer CEOs are overrepresented in both bidder-and targetinitiated deals, indicating that CEO youth predicts acquisition participation rather than active deal initiation. Target initiation is positively associated with vested CEO equity but strongly negatively associated with unvested equity, as if incentivizing the CEO to continue the firm as a stand-alone company. These and other findings show that standard takeover correlations conflate selection into deals with the choice to initiate them.