Costs and Benefits of 'Friendly' Boards during Mergers and Acquisitions

51 Pages Posted: 13 Mar 2014

See all articles by Breno Schmidt

Breno Schmidt

Emory University - Goizueta Business School

Date Written: February 1, 2014


Finance theory predicts that board independence is not always in the shareholders’ interest. In situations where board advice is more important than monitoring, independence can decrease firm value. I test this prediction by examining the connection between takeover returns and board “friendliness”, using social ties between the CEO and board members as a proxy for less independent boards. I find that social ties are associated with higher bidder announcement returns when the potential value of board advice is high, but with lower returns when monitoring needs are high. The evidence suggests that friendly boards can have both costs and benefits, depending on the company’s specific needs.

Keywords: Governance, Social Networks, Mergers and Acquisitions

JEL Classification: G30, G34, G39

Suggested Citation

Schmidt, Breno, Costs and Benefits of 'Friendly' Boards during Mergers and Acquisitions (February 1, 2014). EFA 2009 Bergen Meetings Paper, Available at SSRN: or

Breno Schmidt (Contact Author)

Emory University - Goizueta Business School ( email )

1300 Clifton Road
Atlanta, GA 30322-2722
United States

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