Conflicts of interest on corporate boards: The effect of creditor-directors on acquisitions
AbstractThis 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 InfoArticle provided by Elsevier in its journal Journal of Corporate Finance.
Volume (Year): 19 (2013)
Issue (Month): C ()
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Web page: http://www.elsevier.com/locate/jcorpfin
Shareholder–creditor conflicts; Acquisitions; Board of directors; Bankers on boards; Corporate governance; Credit market reaction;
Other versions of this item:
- Jens Hilscher & Elif Sisli-Ciamarra, 2011. "Conflicts of interest on corporate boards: The effect of creditor-directors on acquisitions," Working Papers 34, Brandeis University, Department of Economics and International Businesss School.
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
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- 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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