Officers’ Fiduciary Duties and Acquisition Outcomes
Financial Review, Forthcoming
47 Pages Posted: 17 Mar 2013 Last revised: 21 Feb 2019
Date Written: February 18, 2019
Using a Delaware case law that recognized officers’ distinct fiduciary duties (OFDs) for the first time in 2009, I examine the effect of OFDs on corporate acquisitions. I find that firms with entrenched officers prior to 2009 experienced increased announcement-period abnormal stock returns, mainly because their acquisitions created more synergies and reduced officers’ incentives to preserve control. These firms increased liability insurance premium expenditures, but reduced value-decreasing acquisition frequencies. Furthermore, the effect of OFDs is more pronounced in firms where officers are not directors, have wealth risk, face less product market competition, are insulated from the market for corporate control, or are able to avoid board monitoring. Overall, OFDs are a critical corporate governance mechanism that works in tandem with other disciplinary mechanisms.
Keywords: officers’ fiduciary duties, corporate governance, agency costs, mergers and acquisitions
JEL Classification: G30, G34
Suggested Citation: Suggested Citation