ارتباطات هیئت مدیره و معاملاتM&A
|کد مقاله||سال انتشار||تعداد صفحات مقاله انگلیسی||ترجمه فارسی|
|9470||2012||23 صفحه PDF||سفارش دهید|
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Publisher : Elsevier - Science Direct (الزویر - ساینس دایرکت)
Journal : Journal of Financial Economics, Volume 103, Issue 2, February 2012, Pages 327–349
We examine M&A transactions between firms with current board connections and find that acquirers obtain higher announcement returns in transactions with a first-degree connection where the acquirer and the target share a common director. Acquirer returns are also higher in transactions with a second-degree connection where one acquirer director and one target director serve on the same third board. Our results suggest that first-degree connections benefit acquirers with lower takeover premiums while second-degree connections benefit acquirers with greater value creation. Overall, we provide new evidence that board connectedness plays important roles in corporate investments and leads to greater value creation.
This paper examines M&A transactions with a current board connection between acquirer and target firms and presents evidence that acquirers obtain significantly higher announcement returns in such transactions. We study two types of board connections between acquirer and target firms. The first type is where the two firms share a common director before the deal announcement and we refer to this type of connection as a “first-degree connection.” The second type is where one director from the acquirer and one director from the target have been serving on the board of a third firm before the deal announcement. We refer to this type of connection as a “second-degree connection.” We focus only on current board connections in that the acquirer and the target must have a board connection through their directors at the time of the deal announcement. Having a board connection between two firms may improve information flow and communication between the firms, and increase each firm's knowledge and understanding of the other firm's operations and corporate culture. This enhanced knowledge and information advantage, in turn, may lead to a better M&A transaction between the two firms. The information advantage may also affect the takeover premium and hence the transaction price of the deal. This is because acquirers with a board connection to the target may enjoy a bargaining advantage in deal negotiations due to their private information about the target firm, relative to outside bidders with no connection to the target. In addition, particularly in first-degree connections, the presence of an acquirer's director on the target firm's board may limit competition from outside less-informed bidders, and reduce the acquirer's incentive to offer a higher premium in order to deter a competing bidder. Finally, greater information flow and communication between connected firms may affect the transaction costs of the deal by mitigating the need for advisory services of investment banks in initiating the transaction and identifying the synergy sources. Similarly, there could be a lower need for fairness opinions in connected transactions given the more informed position of the connected directors. The lower need for advisory services and fairness opinions, in turn, may manifest itself in a lower amount of transaction costs paid to investment banks. To examine these possible effects of board connections on M&A transactions, we study announcement returns, takeover premiums, long-run operating performance of the newly merged firm, as well as investment banking fees paid in a transaction. In our sample of 1,664 US acquisitions between 1996 and 2008, we observe a board connection between the acquirer and the target in 9.4% of the transactions. In terms of dollar deal values, connected transactions represent 19.8% of the overall transaction volume. We find that the average acquirer abnormal return from two days before to two days after the acquisition announcement is 0.12% in first-degree connected transactions, and −2.33% in non-connected transactions. The difference is 2.45%, and significantly different from zero at the 5% level. In addition, we find lower takeover premiums in the presence of a first-degree connection. Interestingly, takeover premiums become even lower when the connected director is an executive at the acquirer. To the extent that executive directors possess greater information advantage and greater incentives to undertake the deal at a lower price compared to outside directors, this result supports the view that first-degree connections provide the acquirer with an information advantage and allow the firm to acquire the target at a more attractive price. We also find that the number of bidders in transactions with a first-degree connection is lower, compared to non-connected transactions. A board connection between the acquirer and the target may deter competition from outside bidders who fear the winner's curse more due to the presence of an informed bidder, consistent with the main prediction of winner's curse theories that the incidence and magnitude of the winner's curse is positively related to the number of bidders (Kagel and Levin, 1986). Furthermore, we show that the takeover premium in first-degree connections is lower when the number of competing bidders is smaller. These results favor the interpretation that a first-degree board connection leads the acquirer to have a greater bargaining power in merger negotiations by providing him with a more informed position about the target and by limiting the degree of competition from less-informed outside bidders. Finally, we find that investment banking fees paid as a percentage of deal size are lower in first-degree connected transactions, compared to non-connected transactions. Similar to transactions with a first-degree connection, acquirer shareholders obtain higher announcement returns in transactions with a second-degree connection as well. In second-degree connected transactions, the mean acquirer announcement return is −0.65%, while in non-connected deals the mean acquirer return is −2.33%. The difference is 1.67% and significantly different from zero at the 5% level. Likewise, the average combined announcement return in second-degree connected transactions is 2.81%, while it is 0.97% in non-connected sample. The difference is 1.84%, and significantly different from zero at the 5% level. In addition, the post-deal operating performance of the combined firm is better in transactions with a second-degree connection compared to transactions with no connection, suggesting that such deals are associated with better performance in the long run as well. Although we find that both types of board connections are related to greater acquirer announcement returns, our results suggest that the economic mechanism driving these superior returns is different between first- and second-degree connections. Communication and information advantage of first-degree connections appear to help the acquirer buy the target at a lower premium. In addition, limited competition from outside bidders in first-degree connections enhances the acquirer's ability to pay a lower premium for the target, and reduces the target's ability to ask for a higher premium. Communication and information advantage present in second-degree connections, on the other hand, appear to be associated with deals with greater overall value creation, as evidenced by higher combined announcement returns and better post-deal operating performance of the combined firm in such deals. An important difference between first- and second-degree connections is that the connected director in first-degree connections represents both acquirer and target shareholders, while in second-degree connections, the connected director at the acquirer represents acquirer shareholders and the connected director at the target represents target shareholders. Hence, connected directors in second-degree connections are more likely to undertake deals if they lead to superior combined announced returns. This might explain why we find second-degree connections are associated with greater overall value creation from the deal relative to first-degree connections. An important concern for our analysis is that board connections do not arise randomly and they may be related to certain omitted firm characteristics which could independently affect M&A outcomes. To address such endogeneity concerns, in our regression framework we control for all important factors shown to affect M&A outcomes significantly such as acquirer size, deal size relative to acquirer size, financing of the transaction, and whether the deal is diversifying, among others. In addition, we conduct a number of robustness tests to alleviate the concern that our results might still be driven by factors omitted in our multivariate analysis. One possibility is that firms with talented and high quality directors are more likely to have board connections given that there may be a great demand for their directors. Such firms could also be more likely to engage in high quality M&A deals. It is also possible that firms with greater similarity, firms with previous business relations, and firms located at a closer distance to each other are more likely to have common directors and to generate better M&A outcomes when they merge. Another possibility is that it is the acquisition experience of the acquirer which explains our results. Firms with greater acquisition experience may be more likely to gain connected directors as a result of past acquisitions, and their past acquisition experience may help them undertake better deals. To address these possibilities, we control for managerial quality and corporate governance of the acquirer, similarity between the acquirer and the target, the existence of a previous business relation between the acquirer and the target, geographical proximity between the acquirer and the target, and the acquisition history of the acquirer. We verify that the positive effect of board connections on acquirer announcement returns remains robust after including all these additional control variables. To rule out any remaining time-invariant unobservable characteristics of connected acquirers which may lead to better M&A outcomes, we perform an analysis with firm fixed effects where we compare the deals in which the acquirer has a board connection to the target with those deals by the same acquirer in which the acquirer has no board connection to the target. If board connection is a simple proxy for firm quality, such acquirers should generate better M&A performance independent of whether they acquire connected or non-connected targets. Our results, however, show that these acquirers obtain higher announcement returns from their acquisitions of connected targets. The organization of the paper is as follows. In Section 2 we describe the first- and second-degree connections in greater detail, and discuss the potential economic mechanisms through which they may affect the terms and outcomes of M&A transactions. Section 2 also reviews the recent literature on board connections and discusses our paper in the context of existing work. Section 3 introduces our sample and reports summary statistics. Section 4 analyzes the relation between board connections and announcement returns. Section 5 studies takeover premium, deal profitability, and transaction costs in terms of investment banking fees in order to understand the economic channels through which board connections lead to superior acquirer performance. Section 6 concludes.
نتیجه گیری انگلیسی
This paper examines M&A transactions with a board connection between acquirer and target firms and presents evidence that acquirers obtain significantly higher announcement returns in such transactions. We study two types of board connections between acquirer and target firms. In first-degree connections, the acquirer and the target share a common director before the deal announcement. In second-degree connections, one director from the acquirer and one director from the target serve on the board of a third firm before the deal announcement. Our results suggest that first-degree connections benefit acquirers by providing them with an information advantage about the true value of the target firm, limiting competition from outside less-informed bidders, and allowing them to acquire underperforming firms at an attractive price. In addition, advisory fees paid to investment banks are significantly lower in the presence of a first-degree connection. Second-degree connections, on the other hand, appear to facilitate efficient deal-making as evidenced by greater overall value creation experienced by acquirer and target shareholders at the deal announcement, and better operating performance of the combined firm after the deal completion. The differences in how first- and second-degree connections affect M&A outcomes can be explained by the fact that in first-degree connections, one director represents both acquirer and target firm shareholders, while second-degree connections involve two directors separately representing acquirer and target firm shareholders, with less scope for conflict of interest. Overall, we conclude that professional board connections play an important role in corporate investment policy with significant implications for value creation.