Ownership Structure, Board Composition and the Market for Corporate Control in the UK: An Empirical Analysis
Posted: 2 Dec 2003
This paper analyses the board composition and ownership structures of a sample of companies that have been acquired and those of a control sample that have not. We find significant governance differences between acquired firms and the control sample. Firms with the following characteristics were more likely to be acquired: they had the same person acting as CEO and chair, a higher proportion of non-executive directors, larger institutional shareholders and higher director shareholdings. An analysis of small firms also found evidence of higher CEO shareholdings. We also find that treating all take-overs as a single group leads to model mis-specification which does not identify the incentive effects of board and CEO shareholdings present in non-hostile acquisitions. These results are consistent with two agency-derived hypotheses, financial incentives and effective monitoring. We also find that targets exhibit lower growth potential but do not have worse accounting performance.
Keywords: corporate governance, market for corporate control, duality, outside directors, independent directors, takeovers, UK, smaller quoted firms, board shareholdings, institutional shareholdings, takeover target
JEL Classification: M20, G34, G32, G31, L20, L21
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