Does board gender diversity matter? Evidence from hostile takeover vulnerability

Purpose Theory suggests that the market for corporate control, which constitutes an important external governance mechanism, may substitute for internal governance. Consistent with this notion, using a novel measure of takeover vulnerability primarily based on state legislation, this paper aims to investigate the effect of the takeover market on board characteristics with special emphasis on board gender diversity. Design/methodology/approach This paper exploits a novel measure of takeover vulnerability based on state legislation. This novel measure is likely exogenous as the legislation was imposed from outside the firm. By using an exogenous measure, the analysis is less vulnerable to endogeneity and is thus more likely to show a causal effect. Findings The results show that a more active takeover market leads to lower board gender diversity. Specifically, a rise in takeover vulnerability by one standard deviation results in a decline in board gender diversity by 10.01%. Moreover, stronger takeover market susceptibility also brings about larger board size and less board independence, corroborating the substitution effect. Additional analysis confirms the results, including propensity score matching, generalized method of moments dynamic panel data analysis and instrumental variable analysis. Originality/value The study is the first to explore the effect of the takeover market on board gender diversity. Unlike most of the previous research in this area, which suffers from endogeneity, this paper uses a novel measure of takeover vulnerability that is probably exogenous. The results are thus much more likely to demonstrate causality.

Does the market for corporate control influence executive risk-taking incentives? Evidence from takeover vulnerability

Purpose This study aims to investigate the role of the market for corporate control as an external governance mechanism and its effect on executive risk-taking incentives. Managers tend to be risk-averse as they are more exposed to idiosyncratic risk, resulting in sub-optimal risk-taking that does not maximize shareholders’ wealth. The takeover market alleviates this problem, inducing managers to take more risk. Therefore, risk-taking incentives inside the firm are less powerful when the outside takeover market is more active. Design/methodology/approach Exploiting a novel measure of takeover vulnerability recently constructed by Cain et al. (2017), the authors explore how takeover vulnerability influences executive risk-taking incentives. Using a large sample of US firms, the authors use fixed-effects regressions, propensity score matching and instrumental variable analysis. Findings Consistent with this study’s hypothesis, a more active takeover market results in less powerful risk-taking incentives. Specifically, a rise in takeover vulnerability by one standard deviation diminishes executive risk-taking incentives by 22.39%, which is an economically meaningful magnitude. Originality/value To the best of the authors’ knowledge, this study is the first to explore the effect of the takeover market on managerial risk-taking incentives, using a novel measure of takeover susceptibility. The authors’ measure of takeover vulnerability is considerably less susceptible to endogeneity, enabling the authors to draw causal inferences with more confidence.

The Prospect of Regulatory Alignment for an Interconnected Capital Market between the United Kingdom and China: A Takeover Law Perspective

The United Kingdom (UK) and China have launched the London–Shanghai Stock Connect Scheme to achieve an integrated capital market. In this article, the takeover market is used as an example to examine the extent to which regulatory alignment between the UK and China is possible. The focus is on the role of financial intermediaries in the two markets and how they may influence the governance model of the transfer of corporate control by an open offer to the shareholders of the target company (a takeover bid). This article argues that without regulatory alignment such an integrated market is unlikely to be realized. There are differences between the UK and China in the economic model, ownership structure, and institutional arrangements, which have been reflected in the differences in interests served by takeover law in the two regimes. The design of the framework for takeover law in the UK empowers financial market participants, so as to attract capital to the London markets. In contrast, China’s takeover law is mainly aimed at facilitating industrial restructuring and creating globally competitive national companies (national champions). Hence, the UK’s shareholder-centred takeover model, with a strong focus on financial intermediaries and international investors, would not be easily replicated in China. However, the UK model could provide lessons for China to develop its takeover market—that is, further its market structure reform, develop independent financial intermediaries, and also attract an increasing number of investors.