Corporate Governance and Acquirer Returns
Ronald W. Masulis
University of New South Wales - Australian School of Business; European Corporate Governance Institute (ECGI); Financial Research Network (FIRN)
The Chinese University of Hong Kong (CUHK) - Department of Finance
University of Delaware; University of Delaware
ECGI-Finance Working Paper No. 116/2006
Journal of Finance, Forthcoming
We examine whether corporate governance mechanisms, especially the market for corporate control, affect the profitability of firm acquisitions. We find that acquirers with more anti-takeover provisions experience significantly lower announcement-period stock returns than other acquirers. We also find that acquiring firms operating in more competitive industries or separating the positions of CEO and chairman of the board experience higher abnormal announcement returns. Our results support the hypothesis that managers protected by more anti-takeover provisions face weaker discipline from the market for corporate control and thus, are more likely to indulge in empire-building acquisitions that destroy shareholder value. They provide a partial explanation for why anti-takeover provision indices of Gompers, Ishii and Metrick and others are negatively correlated with shareholder value.
Number of Pages in PDF File: 63
Keywords: Corporate Governance, Anti-takeover Provisions, Takeover Protection, Market for Corporate Control, Acquisitions, Acquisition Profitability, Agency Problems
JEL Classification: G34, G14, D84, D21, D23
Date posted: April 11, 2005
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