47 Pages Posted: 13 Mar 2009 Last revised: 5 Oct 2012
Date Written: September 30, 2012
This paper investigates the effects on acquisitions of creditor-director presence on corporate boards. Using a hand-collected dataset for boards of large U.S. corporations, we find that companies with creditor-directors are more likely to engage in acquisitions with attributes that are unfavorable to shareholders and favorable to creditors (more diversifying and fewer cash-financed acquisitions). Consistent with these patterns, acquisition announcements are associated with lower shareholder value, higher creditor value, and lower overall firm value when a creditor is present. These results support the hypothesis that conflicts of interest between shareholders and creditors result in value-destroying acquisitions. In addition, commercial bankers with no lending relationship are not affected by conflicts of interest. Where appropriate, our estimation strategy takes into account that there may be self selection of bankers onto corporate boards.
Keywords: shareholder-creditor conflicts, acquisitions, board of directors, bankers on boards, corporate governance, credit market reaction
JEL Classification: G21, G34
Suggested Citation: Suggested Citation
Hilscher, Jens and Sisli Ciamarra, Elif, Conflicts of Interest on Corporate Boards: The Effect of Creditor-Directors on Acquisitions (September 30, 2012). Available at SSRN: https://ssrn.com/abstract=1358465 or http://dx.doi.org/10.2139/ssrn.1358465