Too Busy or Well-Connected? Evidence from a Shock to Multiple Directorships

2018 ◽  
Vol 94 (2) ◽  
pp. 83-104 ◽  
Author(s):  
Anna Bergman Brown ◽  
Jing Dai ◽  
Emanuel Zur
Keyword(s):  
Firm Value ◽  
Performance Monitoring ◽  
Operating Performance ◽  
Costs And Benefits ◽  
Negative Effects ◽  
Multiple Directorships ◽  
Target Firms ◽  
Prior Literature ◽  
New Evidence ◽  
Gain Access

ABSTRACT Prior literature documents that multiple directorships are negatively associated with operating performance due to overly busy directors; however, multiple directorships may also increase firm value because directors gain access to valuable connections, resources, and information through their multiple appointments. This paper examines M&A that terminate target firms' entire boards as a negative shock to both board busyness and connections at other firms, as a complement to Hauser (2018). We document that firms experiencing a decrease in multiple directorships due to M&A exhibit improved operating performance, monitoring, and strategic advising, on average. Firms with the smallest decrease in board connections experience the greatest improvement in operating performance and advising, while firms with the greatest decrease in board connections experience null or negative effects on operating performance and advising. Our findings provide new evidence of the costs and benefits of multiple directorships based on board busyness and connections.

Human Capital-Driven Acquisition: Evidence from the Inevitable Disclosure Doctrine

2020 ◽  
Author(s):  
Deqiu Chen ◽  
Huasheng Gao ◽  
Yujing Ma
Keyword(s):  
Human Capital ◽  
Operating Performance ◽  
Trade Secret ◽  
State Courts ◽  
Corporate Acquisitions ◽  
Top Executives ◽  
Long Run ◽  
Target Firms ◽  
Secret Knowledge ◽  
Gain Access

We present evidence that the desire to gain human capital is an important motive for corporate acquisitions. Our tests exploit the staggered recognition of the Inevitable Disclosure Doctrine (IDD) by U.S. state courts, which prevents employees with trade secret knowledge from working for other firms. We find a significant increase in the likelihood of being acquired for firms headquartered in states that recognize such a doctrine relative to firms headquartered in states that do not. Our result is stronger for firms with greater human capital and for firms whose employees have better ex ante employment mobility. We show that the IDD is positively associated with the retention of target firms’ key technicians, employees, and top executives after an acquisition. We also show that the IDD is positively associated with synergy creation, acquirers’ announcement returns, and acquirers’ long-run stock and operating performance. Overall, our result indicates that corporate acquisitions can be used as a means for firms to overcome labor market frictions and gain access to valuable human capital. This paper was accepted by David Simchi-Levi, finance.

Will I Get Paid? Employee Stock Options and Mergers and Acquisitions

2020 ◽  
pp. 1-36
Author(s):  
Ilona Babenko ◽  
Fangfang Du ◽  
Yuri Tserlukevich
Keyword(s):  
Mergers And Acquisitions ◽  
Firm Value ◽  
Stock Options ◽  
Merger And Acquisition ◽  
Employee Stock Options ◽  
Negative Effects ◽  
Employee Compensation ◽  
Compensation Contracts ◽  
Unique Data ◽  
Target Firms

We analyze how employee compensation contracts of target firms affect merger terms and outcomes. Using unique data from merger agreements, we document that in 80.0% of all merger and acquisition (M&A) deals, at least some of the target’s employee stock options (ESOs) are canceled by the acquirer and not replaced by new equity-based grants. Contract modifications reduce the value of ESOs by 38.4% in the average M&A deal. Further, the combined merger returns are larger when employees experience greater losses. Overall, our results indicate that the benefits of reducing the number of ESOs outweigh the potential negative effects on firm value.

Firm value and Operating performance of IPO firms

2011 ◽  
Vol 25 (1) ◽  
pp. 177-195 ◽  
Author(s):  
Kim Nam Gon ◽  
Park Young-Seog
Keyword(s):  
Firm Value ◽  
Operating Performance

Does Board Independence Increase Firm Value? Evidence from Closed-End Funds

2019 ◽  
pp. 1-24
Author(s):  
Matthew E. Souther
Keyword(s):  
Instrumental Variables ◽  
Firm Value ◽  
Board Independence ◽  
Difference In Differences ◽  
Cross Sectional ◽  
Closed End Funds ◽  
The Impact ◽  
New Evidence

Researchers disagree about the impact of board independence on firm value. The disagreement generally stems from the endogenous nature of board appointments. I add new evidence to this discussion by using a sample of closed-end funds to document the value-enhancing effects of independent boards. Using cross-sectional, difference-in-differences, and instrumental variables techniques, I address these endogeneity concerns and find consistent evidence that board independence is associated with higher firm value.

scholarly journals Institutional Investors and Hedge Fund Activism

2020 ◽  
Author(s):  
Simi Kedia ◽  
Laura Starks ◽  
Xianjue Wang
Keyword(s):  
Stock Returns ◽  
Institutional Investors ◽  
Operating Performance ◽  
Hedge Fund ◽  
Target Firms ◽  
Hedge Fund Activism ◽  
Institutional Shareholders

Abstract Hedge fund activists have ambiguous relationships with the institutional shareholders in their target firms. While some support their activities, others counter their actions. Due to their relatively small holdings in target firms, activists typically need the cooperation of other institutional shareholders that are willing to influence the activists’ campaign success. We find the presence of “activism-friendly” institutions as owners is associated with an increased probability of being a target, higher long-term stock returns, and higher operating performance. Overall, we provide evidence suggesting the composition of a firm’s ownership has significant effects on hedge fund activists’ decisions and outcomes.

Are Busy Directors Harmful or Helpful? Evidence from the Great Recession

2018 ◽  
Vol 18 (2) ◽  
Author(s):  
Pradit Withisuphakorn ◽  
Pornsit Jiraporn
Keyword(s):  
Standard Deviation ◽  
Financial Crisis ◽  
Great Recession ◽  
Firm Value ◽  
Costs And Benefits ◽  
Governance Mechanisms ◽  
Great Caution ◽  
Crisis Period ◽  
The Great Recession

Abstract We contribute to the debate on the costs and benefits of busy directors by investigating the effect of busy directors on firm value during a stressful time, i. e. during the Great Recession. Our results show that busy directors improve firm value significantly during the financial crisis. In particular, a rise in directors’ busyness by one standard deviation results in an improvement in Tobin’s q by 6.41 %. Directors with multiple board seats appear to help firms navigate the crisis more successfully, supporting the notion that multiple board seats signal higher quality. Outside the crisis period, however, we find that busy directors reduce firm value, consistent with many prior studies. Our results are crucial as they show that governance mechanisms function differently during stressful times than they do during normal times. Firms should exercise great caution before imposing limits on outside board seats on their directors.

scholarly journals Board size and firm operating performance: Evidence from Germany

2009 ◽  
Vol 5 (1) ◽  
pp. 37-47
Author(s):  
Andrea Graf ◽  
Markus Stiglbauer
Keyword(s):  
Operating Performance ◽  
Board Structure ◽  
Corporate Boards ◽  
Optimum Size ◽  
Negative Effects ◽  
Return On Assets ◽  
Board Size ◽  
Return On Equity ◽  
Listed Firms ◽  
Management Board

Determining the optimum size of corporate boards is an important task for companies. Agency theory suggests that either too large or too small boards cause negative effects on firm operating performance. For a given sample of 113 listed firms in the German Prime market, we tested the effect of board size on return on assets and return on equity. Our findings provide evidence that there is a significantly negative Management Board size effect both on return on assets and return on equity. The results are consistent with the assumption of dysfunctional norms of behaviour within the German two-tier board structure.

scholarly journals State Control, Marketization, And Firm Value: Evidence From China

2014 ◽  
Vol 30 (6) ◽  
pp. 1577 ◽  
Author(s):  
Kun Su ◽  
Rui Wan
Keyword(s):  
Panel Data ◽  
Firm Value ◽  
State Control ◽  
Negative Effects ◽  
Firm Level ◽  
Listed Firms ◽  
The Government ◽  
High Degree

<p>Using a firm-level panel data of Chinese listed firms, this paper examines the effects of state control on firm value and the different impacts that have under different degree of marketization deeply. The results show: compared with non-state controlled firms, state controlled firms are imposed by much policy burden and have more serious tunneling or expropriation behaviors. Therefore, firm values in state controlled firms are lower than in non-state controlled firms. For state controlled firms, the lower the government administrative ranks, the more serious the intervention or expropriation behaviors imposed by government, and thus the lower the firm value. Compared with low marketization regions, the negative effects of state control and low government administrative rank control on firm value is relatively smaller in regions with high degree of marketization.</p>

scholarly journals Board Interlocking no Brasil: A Participacão de Conselheiros em Múltiplas Companhias e seu Efeito sobre o Valor das Empresas

2007 ◽  
Vol 5 (2) ◽  
pp. 125 ◽  
Author(s):  
Rafael Liza Santos ◽  
Alexandre Di Miceli da Silveira
Keyword(s):  
Firm Value ◽  
Operational Performance ◽  
Interlocking Directorates ◽  
Listed Firms ◽  
Ownership Structures ◽  
Multiple Directorships ◽  
Good Corporate Governance ◽  
Governance Practices ◽  
High Level ◽  
Dispersed Ownership

This paper investigates the simultaneous participation of directors in different companies from 320 Brazilian listed firms in 2003 and 2005. We identify which firms are connected through a network of directors, which corporate characteristics contribute to this phenomenon, and if board interlocking influences firm value and operational performance. The results show that interlocking directorates are a common practice in Brazil. Besides, larger boards, more dispersed ownership structures, and larger firm size are factors associated with a high level of board interlocking. Moreover, we find that firm value is, on average, negatively impacted by higher levels of board interlocking, especially on firms with board of directors considered too busy (those in which a majority of directors hold three or more directorships) or on firms where their CEO hold directorships in other companies. Besides being a pioneer work on this field in Latin America, the paper provides subsides for the preparation of good corporate governance practices from regulators regarding the effectiveness of multiple directorships and its consequences for corporate value.

Beneficial interactions in communities: mutualism and facilitation

2019 ◽  
pp. 158-176
Author(s):  
Gary G. Mittelbach ◽  
Brian J. McGill
Keyword(s):  
Mycorrhizal Fungi ◽  
Population Growth Rate ◽  
Context Dependency ◽  
Positive Interactions ◽  
Costs And Benefits ◽  
Negative Effects ◽  
Biological Markets ◽  
The Face ◽  
Community Theory ◽  
Competition For Resources

The consequences of beneficial interactions for the diversity and functioning of communities remain poorly understood, but this is changing. This chapter examines how mutualism may evolve in the face of cheating, using the concept of biological markets where members of each species exchange resources and services, with associated costs and benefits. Understanding the evolution and maintenance of positive interactions in communities requires that we consider the broader web of interactions and abiotic conditions in which mutualisms are embedded—their context dependency. Ant-plant mutualisms, plant-Rhizobium mutualisms, and plant-mycorrhizal fungi mutualisms are discussed as examples of shifting costs and benefits based on context dependency. Recent advances at incorporating positive interactions into community theory allow species to have both positive and negative effects on each other’s population growth rate. For example, the presence of a neighboring plant may enhance survival in a harsh environment, but may reduce plant growth due to competition for resources.

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