Board Networks and Merger Performance
Param Vir Singh
Carnegie Mellon University - David A. Tepper School of Business
Robert J. Schonlau
Brigham Young University - Department of Finance
September 8, 2009
We compare the post-merger financial performance of acquiring firms that have well-connected (central) boards with the performance of less-connected (non-central) boards and find that central boards are associated with better performing acquisitions as evidenced by larger post-merger buy-and-hold abnormal returns, stronger improvements in the ROA, and a 7-12% annual abnormal return based on calendar time portfolios. Central firms are more likely to use cash, to make an acquisition, and to be acquired. Our results suggest that board networks affect the decision to acquire, the choice of target, the method of payment, and ultimately the financial performance of the firm around the merger.
Number of Pages in PDF File: 63
Keywords: Mergers, Directors, Networks, Acquisitions, Interlocks, Boards
JEL Classification: G34, G30, G39
Date posted: January 1, 2009 ; Last revised: September 10, 2009
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