Multiple Directorships and Acquirer Returns

47 Pages Posted: 30 Aug 2007 Last revised: 15 Feb 2010

See all articles by Seoungpil Ahn

Seoungpil Ahn

Sogang University

Pornsit Jiraporn

Pennsylvania State University - School of Graduate Professional Studies (SGPS)

Young Sang Kim

Northern Kentucky University - Haile/US Bank College of Business

Date Written: December 28, 2009

Abstract

This paper examines the impact of multiple directorships on stockholder wealth around the announcements of mergers and acquisitions. Grounded in agency theory, we argue that multiple directorships affect the quality of managerial oversight and thus influence agency conflicts in acquisition decisions. We show that acquiring firms where directors hold more outside board seats experience more negative abnormal returns. This adverse effect, nonetheless, does not extend across the entire range of multiple directorships. Rather, the detrimental impact is significant only when the number of outside board seats surpasses a certain threshold. We interpret this result as suggesting that directors serving on multiple boards allow value-destroying acquisitions when they become too busy beyond a certain point, and the effect of directors’ busyness on acquisition performance appears to be nonlinear. We employ several alternative definitions of directors’ busyness and obtain consistent results.

Keywords: Multiple directorships, Agency theory, Board appointments, Mergers and Acquisitions

JEL Classification: G12, G30, G34

Suggested Citation

Ahn, Seoungpil and Jiraporn, Pornsit and Kim, Young Sang, Multiple Directorships and Acquirer Returns (December 28, 2009). Journal of Banking and Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1010637

Seoungpil Ahn (Contact Author)

Sogang University ( email )

Seoul 121-742
Korea, Republic of (South Korea)

Pornsit Jiraporn

Pennsylvania State University - School of Graduate Professional Studies (SGPS) ( email )

30 E. Swedesford Road
Malvern, PA 19355
United States
(484) 753-3655 (Phone)

HOME PAGE: http://www.personal.psu.edu/pxj11/index1.html

Young Sang Kim

Northern Kentucky University - Haile/US Bank College of Business ( email )

Dept of Economics and Finance
Highland Heights, KY 41099
United States
859-572-5160 (Phone)
859-572-6627 (Fax)

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