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Conflicts of interest on corporate boards: The effect of creditor-directors on acquisitions

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  • Hilscher, Jens
  • Şişli-Ciamarra, Elif

Abstract

This paper investigates the effects on acquisitions of creditor-director presence on corporate boards. Using a hand-collected dataset for boards of large U.S. corporations, we find that companies with creditor-directors are more likely to engage in acquisitions with attributes that are unfavorable to shareholders and favorable to creditors (more diversifying and fewer cash-financed acquisitions). Consistent with these patterns, acquisition announcements are associated with lower shareholder value, higher creditor value, and lower overall firm value when a creditor is present. These results support the hypothesis that conflicts of interest between shareholders and creditors can result in value-destroying acquisitions. In addition, commercial bankers with no lending relationship are not affected by conflicts of interest. Where appropriate, our estimation strategy takes into account that there may be self selection of bankers onto corporate boards.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Corporate Finance.

Volume (Year): 19 (2013)
Issue (Month): C ()
Pages: 140-158

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Handle: RePEc:eee:corfin:v:19:y:2013:i:c:p:140-158

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Web page: http://www.elsevier.com/locate/jcorpfin

Related research

Keywords: Shareholder–creditor conflicts; Acquisitions; Board of directors; Bankers on boards; Corporate governance; Credit market reaction;

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  1. Heron, Randall & Lie, Erik, 2002. "Operating Performance and the Method of Payment in Takeovers," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 37(01), pages 137-155, March.
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