Count on it: The Influence of CEO Numeracy on Acquisition Decisions and Outcomes

This dissertation examines the impact of chief executive officers’ (CEO) numeracy on strategic decisions and outcomes. CEO numeracy refers to the capacity of a CEO to perform one or more mental activities on information and/or concepts that are numerical in nature. Although numeracy is widely studied in disciplines such as health sciences, education, and psychology and is commonly associated with superior and more effective decision making, it is largely missing from organizational scholarship. Numeracy is particularly relevant in the context of top management teams as the conditions in which executives operate compromise the effectiveness of strategic decision making. As such, I examine the effect of CEO numeracy on acquisition decisions and outcomes. Despite global growth in acquisition investments over the years, studies suggest that acquisitions more often erode instead of improve acquiring firm value. Therefore, I propose that CEO numeracy is negatively associated with acquisition decisions such as the number of acquisitions, value of acquisitions, and number of large acquisitions undertaken by a firm. Moreover, among CEOs that engage in acquisitions, I propose that more numerate CEOs will experience better acquisition-related outcomes compared to less numerate CEOs. Specifically, I hypothesize that CEO numeracy is negatively related to acquisition premiums and positively related to post-acquisition performance. I use a longitudinal sample comprised of 250 randomly selected U.S. based firms from the S&P 500 index to empirically test my hypothesized relationships. Furthermore, I use CEO-attributed text from earnings calls transcripts and a closed-language analytical approach to develop a novel and accessible measure of CEO numeracy. My analyses did not yield support for my hypotheses. I discuss potential theoretical and empirical explanations for the null findings in my research and propose directions to mitigate those issues in future research.