Officers’ Fiduciary Duties and Acquisition Outcomes

29 Pages Posted: 20 May 2020

Multiple version iconThere are 2 versions of this paper

Date Written: February 2020

Abstract

Using a Delaware case law that recognized officers’ distinct fiduciary duties for the first time in 2009, I examine the effect of officers' fiduciary duties (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: agency costs, corporate governance, mergers and acquisitions, officers’ fiduciary duties

JEL Classification: G30, G34

Suggested Citation

Reza, Syed Walid, Officers’ Fiduciary Duties and Acquisition Outcomes (February 2020). Financial Review, Vol. 55, Issue 1, pp. 91-119, 2020, Available at SSRN: https://ssrn.com/abstract=3601146 or http://dx.doi.org/10.1111/fire.12194

Syed Walid Reza (Contact Author)

SUNY at Binghamton ( email )

P.O. Box 6015
Binghamton, NY 13902-6015
United States

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