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Board Connections and M&A Transactions

58 Pages Posted: 19 Oct 2009 Last revised: 5 Oct 2016

Ye Cai

Santa Clara University - Leavey School of Business

Merih Sevilir

Indiana University - Kelley School of Business - Department of Finance

Date Written: May 2011

Abstract

We examine M&A transactions between firms with current board connections and find that acquirers obtain higher announcement returns in transactions with a first-degree connection where the acquirer and the target share a common director. Acquirer returns are also higher in transactions with a second-degree connection where one acquirer director and one target director serve on the same third board. Our results suggest that first-degree connections benefit acquirers with lower takeover premiums while second-degree connections benefit acquirers with greater value creation. Overall, we provide new evidence that board connectedness plays important roles in corporate investments and leads to greater value creation.

Keywords: Mergers and acquisitions, acquirer returns, board connections

JEL Classification: G34

Suggested Citation

Cai, Ye and Sevilir, Merih, Board Connections and M&A Transactions (May 2011). Journal of Financial Economics (JFE), Forthcoming. Available at SSRN: https://ssrn.com/abstract=1491064 or http://dx.doi.org/10.2139/ssrn.1491064

Ye Cai

Santa Clara University - Leavey School of Business ( email )

500 El Camino Real
Santa Clara, CA California 95053
United States

Merih Sevilir (Contact Author)

Indiana University - Kelley School of Business - Department of Finance ( email )

1309 E. 10th St.
Bloomington, IN 47405
United States

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