Does the structure of the board of directors improve M&A performance?

Aleksandra Anna Chadam

Abstract


Purpose – The research focuses on examining which characteristics can raise or diminish board effectiveness in the context of M&A activities of companies.

Design/methodology/approach – The nature of the research was quantitative, and the sample was selected purposefully. The data was retrieved from four databases: ThomsonOne, Eventus, Institutional Shareholder Platform (ISS) and Compustat. The final sample consisted of 2613 mergers and acquisitions and was selected by applying the following criteria: both the bidder and the target were US-based companies, the acquirer was a listed company, the acquisition announcement took place over the period 2008 – 2017, the deal value exceeded USD 1 million, the transaction resulted in a control gain over the target company. M&A performance was assessed using cumulative abnormal return (CAR) method, while the board influence was examined using ordinary least square (OLS) regression. Five hypotheses regarding the influence of board independence, gender diversity, board size, CEO duality and type of elections were tested in the research.

Findings – Two out of five hypotheses were confirmed in the study. Board independence and board classification increase bidders’ CARs over the deal announcement period.

Research limitations/implications: The main limitation is related to the measurement of M&A performance, which is relatively difficult to quantify. Moreover, the method of selection of the sample, especially a higher proportion of companies from certain industries could affect the outcomes and underestimate the impact of gender diversity. Further research could investigate the deals in the long-term perspective and apply different criteria in the sample selection process.

Practical implications: The outcome of this study is of importance to acquisitive and non-acquisitive companies by aiding them in finding an optimal board structure, which can effectively monitor and motivate the CEO, leading to profitable decisions concerning not only M&A but all major investments.

Originality/value: The study investigates the topic of board effectiveness in the M&A context, which the research coverage is still very limited. The study covers five board characteristics and several control variables to increase the robustness of the results and ensure their correct interpretation. Finally, the sample consists of the most recent data, which enables to draw up-to-date conclusions that consider constantly developing corporate governance law and trends regarding the board structure and composition.


Keywords


M&A; M&A performance; board effectiveness; board independence; gender diversity; board size; CEO duality; classified board

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References


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DOI: http://dx.doi.org/10.17951/ijsr.2018.7.0.15-31
Data publikacji: 2019-03-02 12:19:58
Data złożenia artykułu: 2018-11-18 21:05:20

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