Power and Information: The Effect of Board Networks on Mergers and Acquisitions

37 Pages Posted: 15 Jan 2010 Last revised: 13 Mar 2010

Date Written: January 13, 2010

Abstract

Director interlocking is a controversial phenomenon, and many countries have implemented regulation limiting multiple directorships. In contrast, Australian companies and directors are relatively free to develop board networks. This paper extends the research on the effects of interlocking directorships by examining the influence that the board networks have on power and information asymmetry in mergers and acquisitions in Australia. Using a sample of 466 bids between 2000 and 2008, it reveals that the closer bidder and target boards are in the director network the greater the likelihood of deal success, the lower the premium offered, the greater the likelihood of target board approval, and the lower the likelihood of competition from other bidders. These results suggest board networks are used to mitigate information asymmetries. Evidence is presented that board centrality is also related to company power; that is, when the bidding company is substantially more central than the target both target board approval and bid completion are more likely.

Keywords: Information Asymmetry, Director Interlocking, Board Networks, Mergers and Acquisitions, Australia

JEL Classification: G34

Suggested Citation

Etheridge, Dane Rees, Power and Information: The Effect of Board Networks on Mergers and Acquisitions (January 13, 2010). Finance and Corporate Governance Conference 2010 Paper, Available at SSRN: https://ssrn.com/abstract=1536303 or http://dx.doi.org/10.2139/ssrn.1536303

Dane Rees Etheridge (Contact Author)

Curtin University ( email )

GPO Box U1987
Perth, WA WA
Australia

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