Board Composition and Corrective Action: Evidence from Corporate Responses to Bad Acquisition Bids

Paul, Donna L.

doi:10.1017/s0022109000004178

Cited by 83 publications

(39 citation statements)

References 37 publications

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“…We also examine whether insiders’ excess control rights affect a firm's response to the stock market's reaction to an acquisition announcement. Previous studies find that managers are more likely to withdraw acquisitions that generate less favorable market reactions, and that the sensitivity of deal withdrawals to market reactions is lower when acquiring companies have weaker corporate governance (Luo (2005), Chen, Harford, and Li (2007), Paul (2007), Kau, Linck, and Rubin (2008)).…”

Section: Analysis Of Acquisition Decisionsmentioning

confidence: 98%

Agency Problems at Dual‐Class Companies

Masulis¹,

Xie

2009

The Journal of Finance

506

212

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Using a sample of U.S. dual-class companies, we examine how divergence between insider voting and cash flow rights affects managerial extraction of private benefits of control. We find that as this divergence widens, corporate cash holdings are worth less to outside shareholders, CEOs receive higher compensation, managers make shareholder value-destroying acquisitions more often, and capital expenditures contribute less to shareholder value. These findings support the agency hypothesis that managers with greater excess control rights over cash flow rights are more prone to pursue private benefits at shareholders' expense, and help explain why firm value is decreasing in insider excess control rights. Copyright (c) 2009 the American Finance Association.

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Section: Analysis Of Acquisition Decisionsmentioning

confidence: 98%

Agency Problems at Dual‐Class Companies

Masulis¹,

Xie

2009

The Journal of Finance

506

212

View full text Add to dashboard Cite

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“…Further, existing research concludes that abandonment is the disciplinary finale (Paul, ). Consequently, there has been partial analysis of discipline beyond the point of abandonment, although some dated work does provide some limited evidence for managerial and disciplinary responses to abandonment in bidding firms.…”

Section: Literature Review and Hypothesis Developmentmentioning

confidence: 99%

“…Paul (: 774) argues that abandonment itself is the finale of the disciplinary process, stating that “corrective responses are unnecessary for terminated bids.” However, is abandonment the disciplinary finale? Several studies find ambiguous evidence surrounding discipline in bidders after abandoned bids (see Holl & Pickering, and Taffler & Holl, ).…”

Section: Introductionmentioning

confidence: 99%

Managerial and Disciplinary Responses to Abandoned Acquisitions in Bidding Firms: A New Perspective

McCann

Ackrill²

2015

Corporate Governance

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Manuscript Type: Empirical Research Question/Issue: Existing research suggests that internal and external corporate governance mechanisms substitute for one another to mitigate agency problems in bidding firms. This paper tests whether the interaction between these mechanisms is more complementary. Research Findings/Insights: While there is evidence for disciplinary responses to bids for unrelated targets involving strategic retrenchment and significant asset divestment, the influence of the information conveyed by this characteristic on the likelihood of post-abandonment discipline is not amplified when boards are less independent. Theoretical/Academic Implications: The results suggest that certain characteristics are used to distinguish between abandoned bidders which require discipline and those that do not. However, our findings do not suggest that interaction between internal and external governance mechanisms is contingent on board independence. Instead, these interactions between shareholders and boards seem to be contingent on a range of company, industry, and situation-specific factors. Practitioner/Policy Implications: While policy in the UK has focused on board independence as a means of effective corporate governance, our results suggest that this is not a panacea. Effective governance involves active owners, communicating their interests to boards, and boards responding accordingly. Further encouragement of such communication before, during, and after acquisitions will improve signals to managers that shareholders can target the necessary discipline of those whom they perceive to need it most.

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“…Given these assumptions, the governance literature has largely adopted a “ raise all boats ” view of monitoring, positing that it will improve the odds of good outcomes and reduce the odds of bad ones (Dalton, Daily, Ellstrand, & Johnson, , Dalton, Daily, Certo, & Roengpitya, ). Paul (, p. 760) states, for example, that: “independent boards are perceived to be effective monitors in that they increase (decrease) the likelihood of good (bad) corporate decisions.”…”

Section: Introductionmentioning

confidence: 99%

Is there a “Dark Side” to Monitoring? Board and Shareholder Monitoring Effects on M&A Performance Extremeness

et al. 2017

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Research summary: We investigate the effects of monitoring by boards of directors and institutional shareholders on merger and acquisition (M&A) performance extremeness using a sample of M&A deals from 1997 to 2006. Both governance research and legal reforms generally have espoused a “raise all boats” view of monitoring. We instead investigate whether monitoring may serve as a double‐edged sword that limits CEO discretion to undertake both value‐destroying M&A deals and value‐creating ones. Our findings indicate that the relationship between monitoring and M&A performance is more complex than previously believed. Rather than “raising all boats” in a shift towards better M&A outcomes, monitoring instead is associated with lower M&A losses, but also with lower M&A gains. Managerial summary: Mergers and acquisitions (M&As) are a quintessential corporate activity. There were $3.8 trillion worth of M&A deals in 2015, despite scholars and practitioners reporting that M&As often perform poorly. We question the widespread belief that more vigilant monitoring by boards of directors and large shareholders will raise M&A performance, overall. Put differently, does monitoring constrain CEOs' discretion to pursue bad deals, while simultaneously encouraging them to pursue good ones? We find that monitoring limits both large M&A losses and large M&A gains. Contrary to widely held beliefs, our results indicate that constraining executives' ability to pursue value‐destroying M&A deals does not simultaneously encourage or enable CEOs to pursue value‐creating deals. Copyright © 2017 John Wiley & Sons, Ltd.

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Board Composition and Corrective Action: Evidence from Corporate Responses to Bad Acquisition Bids

Cited by 83 publications

References 37 publications

Agency Problems at Dual‐Class Companies

Agency Problems at Dual‐Class Companies

Managerial and Disciplinary Responses to Abandoned Acquisitions in Bidding Firms: A New Perspective

Is there a “Dark Side” to Monitoring? Board and Shareholder Monitoring Effects on M&A Performance Extremeness

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