Directors' Network and the Method of Payment in Mergers and Acquisitions

23 Pages Posted: 30 Sep 2012

See all articles by Joao Amaro de Matos

Joao Amaro de Matos

Nova School of Business and Economics

Joao Mergulhao

Sao Paulo School of Economics-FGV

Date Written: September 30, 2012

Abstract

This paper studies the impact of the network centrality of directors on the choice of payment method in mergers and acquisitions of firms in which they sit at the board. We assume that the centrality of directors reduces information asymmetry problems, facilitating information transmission between the firms involved in each deal. Using a large database on Board of Directors, we construct the directors' social network and analyze the impact of their centrality on the resolution of information uncertainty surrounding the deal. Our results indicate that when directors seating at the acquiror board have more connections, the percentage of cash used as payment increases. On the other hand, when the director of a target firm has more social connections, the percentage of stock used as payment increases.

Keywords: Directors' Networks, Board Interlocking, mergers and acquisitions, method of payment

JEL Classification: L14, G34

Suggested Citation

Amaro de Matos, Joao and Mergulhão, João, Directors' Network and the Method of Payment in Mergers and Acquisitions (September 30, 2012). Available at SSRN: https://ssrn.com/abstract=2154497 or http://dx.doi.org/10.2139/ssrn.2154497

Joao Amaro de Matos

Nova School of Business and Economics ( email )

Campus de Campolide
Lisbon, 1099-038
Portugal

HOME PAGE: http://docentes.fe.unl.pt/~amatos

João Mergulhão (Contact Author)

Sao Paulo School of Economics-FGV ( email )

Rua Itapeva 474
s.1202
São Paulo, São Paulo 01332-000
Brazil

HOME PAGE: http://eesp.fgv.br/professores/joao_mergulhao

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