Effectiveness of Bidders Internal Governance Structure

Effectiveness of Bidders Internal Governance Structure

Author: zant worldpress

This paper reexamines the link between internal governance structure
(board structure) and acquirer/bidder performance, controlling for the
disciplinary role of the market for corporate control based on the level of antitakeover
provisions (ATPs), using a data sample of mergers and
acquisitions from the 2000s, a period that witnessed significant board
structure reform – the introduction of minimum board independence
requirements to the NYSE and NASDAQ listing rules following the
enactment of the Sarbanes-Oxley Act of 2002. In general, based on the full
data sample, the evidence presented in this paper fails to refute the view
that firms choose their internal governance structure (board structure) in a
value-maximizing way; the mandated changes to board structure, in the
2000s, may have done little to improve the effectiveness of bidders’ internal
governance structure. On average, bidders’ anti-takeover provisions show
no significant effect on the returns to bidders, and fail to significantly affect
the lack of any significant relationship between board structure – board size
and board independence – and the returns to bidders. However, for the subsample
comprising bidders with high levels of anti-takeover provisions,
board independence is found to be negatively related to the returns to
bidders with high levels of ATPs. One interpretation of this finding is that the
effectiveness – benefits relative to the costs – of independent boards
diminishes at high levels of anti-takeover provisions. For the sub-sample
comprising bidders without classified boards, board size is positively related
to the returns to bidders, indicating that the benefits to increasing board size
appears to outweigh the costs for bidders without a classified board

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