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This study examines the collective impact of expert boards and CEOs on acquisition performance, providing new insight into the CEO–board relationship. Acquiring firms with expert boards earns an additional 1.16 percentage points (3.91 percentage points) when the CEOs are new to the target industry (also experts) compared to the firms with “nonexperienced” boards (expert boards alone). Robust to endogeneity checks, our evidence supports the “vigilant-advisor”, “resource-provisioning”, and “shared-experience” hypotheses that take three distinct views of the CEO–board relationship. Generalist CEOs and public targets intensify the shared-experience effect, whereas less powerful CEOs and private targets intensify the resource-provisioning effect. Experienced directors improve the quality of acquisitions by assisting acquirers to avoid large losses, identify targets with higher synergies, and negotiate better deals.

The question whether convertible bonds are issued to combat the risk-shifting problem is a subject of debate in the literature, primarily because of the unavailability of clear measures regarding managerial risk-shifting incentives. Taking advantage of recently developed inside debt-holding measures for CEOs, we find strong evidence in support of the risk-shifting hypothesis. When a CEO holds a large amount of inside debt, three distinct patterns emerge: (i) the firm exhibits a lower ratio of outstanding convertibles to total debt;(ii) the firm is less likely to issue convertibles than straight debt; and (iii) the firm devises contract terms to decrease the chance of conversion when it issues convertibles. K E Y W O R D Sconvertible bond, inside debt, risk shifting INTRODUCTIONFinancial economists have been challenged with the task of explaining the issuance of convertible bonds because these hybrid securities do not fit perfectly into the classical capital theories on the equity-debt choice. The risk-shifting hypothesis (RSH), first introduced by Jensen and Meckling (1976), is often proposed as a reason that convertibles are issued. The RSH posits that controlling shareholders pursue a level of asset risk that is excessive from debtholders' point of view because the value of an equity claim is analogous to a call option written on asset value. Risk-shifting firms thus experience relatively strict financing constraints in the debt market.The issuance of convertible bonds rather than straight bonds is a financing strategy that firms can use to offer assurance to their debt investors. Jensen and Meckling (1976) argue that by issuing a bond-warrant combined security, shareholders effectively share part of the proceeds of the increased asset risk with the firm's debtholders, in turn curbing shareholders' incentive to pursue risk. Green (1984) presents a theoretical model and formalizes that intuition.However, the RSH has received limited empirical support in the literature despite its theoretical validity. The main challenge confronted by any empirical test of the RSH is the difficulty of finding clear empirical proxies for managerial risk-shifting incentives. Earlier studies use firm characteristics as their empirical proxies for the degree of risk-shifting problems. Seward (1999, 2003) propose that firms with fewer profitable investment opportunities (measured by the market-to-book ratio) and greater idiosyncratic risk have a higher degree of risk-shifting concern. In a similar vein, King and Mauer (2014) relate a firm's set of investment opportunities to the extent of its agency concerns. Although these variables are arguably associated with agency costs, they do not exclusively capture managerial risk-shifting incentives. For instance, substantial investment opportunities and high risk may occur together with high 232

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