Abstract

http://ssrn.com/abstract=1666238
 


 



Corporate Governance Structure and Mergers


Elijah Brewer III


DePaul University - Department of Finance; Federal Reserve Bank of Chicago

William E. Jackson III


Culverhouse College of Commerce, University of Alabama; Federal Reserve Bank of Atlanta

Julapa Jagtiani


Federal Reserve Banks - Federal Reserve Bank of Philadelphia

August 19, 2010

FRB of Philadelphia Working Paper No. 10-26

Abstract:     
Few transactions have the potential to generate revelations about the market value of corporate assets and liabilities as mergers and acquisitions (M&A). Corporate governance and control mechanisms such as independent directors, independent blockholders, and managerial share ownership are usually important predictors of the size and distribution of the incremental wealth generated by M&A transactions. The authors add to this literature by investigating these relationships using a sample of banking organization M&A transactions over the period 1990-2004. Unlike research on non-financial firms, the impact of independent directors, share ownership of the top five managers, and independent block holders on bank merger purchase premiums in this environment is likely to be measured more consistently because of industry operating standards and regulations. It is also the case that research on banks in this area has not received adequate attention. The authors model controls for risk characteristics of the target banks, the deal characteristics, and the economic environment. Their results are robust. They support the hypothesis that independent directors may provide an important internal governance mechanism for protecting shareholders' interests, especially in large-scale transactions such as mergers and takeovers. The authors also find the results to be consistent with the hypothesis that independent blockholders play an important role in the market for corporate control as does managerial share ownership. But these effects dampen the impact of independent directors on target shareholders' merger prices. Their overall findings would support policies that promote independent outside directors on the board of banking firms in order to provide protection for shareholders and investors at large.

Number of Pages in PDF File: 29

Keywords: Corporate Governance, Bank Merger, Merger Purchase Premium, Performance, Bank Holding Companies

JEL Classification: G2, G21, G28, G3

working papers series


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Date posted: August 27, 2010  

Suggested Citation

Brewer, Elijah and Jackson, William E. and Jagtiani, Julapa, Corporate Governance Structure and Mergers (August 19, 2010). FRB of Philadelphia Working Paper No. 10-26. Available at SSRN: http://ssrn.com/abstract=1666238 or http://dx.doi.org/10.2139/ssrn.1666238

Contact Information

Elijah Brewer III (Contact Author)
DePaul University - Department of Finance ( email )
1 East Jackson Blvd.
Chicago, IL 60604-2287
United States
Federal Reserve Bank of Chicago ( email )
230 South LaSalle Street
Chicago, IL 60604
United States
William E. Jackson III
Culverhouse College of Commerce, University of Alabama ( email )
Culverhouse College of Commerce
Tuscaloosa, AL 35487-0225
United States
205.348.6217 (Phone)
205.348.6695 (Fax)
Federal Reserve Bank of Atlanta ( email )
1000 Peachtree Street N.E.
Atlanta, GA 30309-4470
United States
Julapa A. Jagtiani
Federal Reserve Banks - Federal Reserve Bank of Philadelphia ( email )
Ten Independence Mall
Philadelphia, PA 19106-1574
United States
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