Influences of Corporate Governance on Mergers and Acquisitions: Acquisitiveness, Pricing, and Performance Effects

Motivated by the empirical gaps on the linkages between corporate governance and Mergers and Acquisitions (M&A), and also by considering the interdependence of governance mechanisms, this thesis aims to provide a more nuanced understanding of the role of firm-level governance mechanisms in acquisition decisions and outcomes. More specifically, the thesis focusses on three key governance mechanisms, namely the board of directors, CEO pay incentives, and institutional investors’ ownership in the US context and comprises three empirical studies as follows. The first study explores how the interrelations (“bundles”) of governance mechanisms influence a firm’s acquisition propensity. The findings show significant substitutive effects between monitoring and incentive alignment governance mechanisms towards firm acquisitiveness, thus mainly providing support for the Substitution Hypothesis. Nevertheless, an exception is detected in a case of complementary effects between two monitoring mechanisms. The second empirical analysis investigates the moderating role of acquirer’s governance in acquisition premium decisions. The study yields several novel results by finding that certain governance mechanisms in the acquiring firm moderate the effect of synergies (either operational or financial) on the size of the acquisition premium paid. Further analysis reveals that during the recent financial crisis the efficacy of governance mechanisms has been inhibited due to increased information asymmetries, thereby exacerbating agency conflicts in the M&A setting. Finally, the third study examines how the interdependence of acquirer governance mechanisms affects acquirer post-acquisition performance both in the short run and in the long run. The results of the event study analysis provide support for both the Substitution and Complementarity Hypotheses between different pairs of monitoring and incentive alignment governance mechanisms in influencing acquirer announcement returns, whereas the results of the long-term operating performance analysis suggest the presence of complementary only effects between governance mechanisms. Together these studies suggest that it is insufficient to simply explore the independent effects of governance mechanisms on firm decisions and outcomes and contribute to the configurational perspective of corporate governance, by offering new evidence that governance “bundles” can allow for different degrees of firm acquisitiveness and post-acquisition performance. In addition, this research shows that acquirer governance arrangements can reduce the overpayment potential in M&A in terms of the acquisition premium paid. The findings of this research have important implications for both theory and practice.