Whose Control Matters? Evidence from the Target Firms of Acquisitions

Abstract

We find that corporate governance affects the post-acquisition performance of the target firms. Though poor-performing firms tended to be the acquired targets, we find that the performance of these target firms did not improve after acquisition. Some empirical variables of corporate governance dictate the post-acquisition performance of the target firm: the higher the proportion of directors or supervisors controlled by the controlling shareholder, the lower the post-acquisition performance of the target firm was. In contrast, the proportion of directors or supervisors controlled by the second largest shareholder was positively related to the postacquisition performance. Furthermore, the performance of the targets improved when the controlling shareholder invested a larger amount in the acquisition. Finally, the target firm was more likely to be trapped in financial distress when the controlling shareholder deeply involved in the board.

Keywords: Corporate Governance, Acquisition, Controlling shareholder