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Board Composition and Corrective Action: Evidence from Corporate Responses to Bad Acquisition Bids

Published online by Cambridge University Press:  06 April 2009

Donna L. Paul
Donna L. Paul
Affiliation:
donna_paul@wsu.edu, Washington State University, College of Business and Economics, Department of Finance, Insurance, and Real Estate, PO Box 644750, Pullman, WA 99164.
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Abstract

This study investigates the role of corporate boards following large declines in share value surrounding acquisition announcements. The results indicate that firms with independent boards are less likely to complete these value-decreasing bids, suggesting that boards influence corporate responses to information in stock prices. Board independence is also associated with unusually high frequencies of asset restructuring for bids that are completed, suggesting that independent boards promote restructuring in mergers the market believes are difficult to integrate. These results complement existing evidence on the board's exante role in averting bad outcomes by showing that independent boards intervene following value-decreasing events.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 42 , Issue 3 , September 2007 , pp. 759 - 783
Copyright
Copyright © School of Business Administration, University of Washington 2007

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