Board Networks and Merger Performance

63 Pages Posted: 1 Jan 2009 Last revised: 10 Sep 2009

Param Vir Singh

Carnegie Mellon University - David A. Tepper School of Business

Robert J. Schonlau

Brigham Young University - Department of Finance

Date Written: September 8, 2009

Abstract

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.

Keywords: Mergers, Directors, Networks, Acquisitions, Interlocks, Boards

JEL Classification: G34, G30, G39

Suggested Citation

Singh, Param Vir and Schonlau, Robert J., Board Networks and Merger Performance (September 8, 2009). Available at SSRN: https://ssrn.com/abstract=1322223 or http://dx.doi.org/10.2139/ssrn.1322223

Param Vir Singh

Carnegie Mellon University - David A. Tepper School of Business ( email )

5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States
412-268-3585 (Phone)

Robert J. Schonlau (Contact Author)

Brigham Young University - Department of Finance ( email )

Marriott School of Management
682 TNRB
Provo, UT 84602
United States
801-422-5879 (Phone)

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