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Board interlocks and the propensity to be targeted in private equity transactions

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  • Stuart, Toby E.
  • Yim, Soojin
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    Abstract

    We examine how board networks affect change-of-control transactions by investigating whether directors' deal exposure acquired through board service at different companies affect their current firms' likelihood of being targeted in a private equity-backed, take-private transaction. In our sample of all US publicly traded firms in 2000-2007, we find that companies which have directors with private equity deal exposure gained from interlocking directorships are approximately 42% more likely to receive private equity offers. The magnitude of this effect varies with the influence of directors on their current boards and the quality of these directors' previous take-private experience, and it is robust to the most likely classes of alternative explanations--endogenous matching between directors and firms and proactive stacking of board composition by management. The analysis shows that board members and their social networks influence which companies become targets in change-of-control transactions.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Financial Economics.

    Volume (Year): 97 (2010)
    Issue (Month): 1 (July)
    Pages: 174-189

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    Handle: RePEc:eee:jfinec:v:97:y:2010:i:1:p:174-189

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    Web page: http://www.elsevier.com/locate/inca/505576

    Related research

    Keywords: Board interlocks Board networks Social networks Private equity Corporate governance;

    References

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    Citations

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    Cited by:
    1. Ulf Axelson & Tim Jenkinson & Per Strömberg & Michael S. Weisbach, 2010. "Borrow Cheap, Buy High? The Determinants of Leverage and Pricing in Buyouts," NBER Working Papers 15952, National Bureau of Economic Research, Inc.
    2. repec:hal:cepnwp:hal-00842582 is not listed on IDEAS
    3. Field, Laura & Lowry, Michelle & Mkrtchyan, Anahit, 2013. "Are busy boards detrimental?," Journal of Financial Economics, Elsevier, vol. 109(1), pages 63-82.
    4. Larcker, David F. & So, Eric C. & Wang, Charles C. Y., 2010. "Boardroom Centrality and Stock Returns," Research Papers 2061, Stanford University, Graduate School of Business.
    5. Francesca Pallotti & Alessandro Lomi & Daniele Mascia, 2013. "From network ties to network structures: Exponential Random Graph Models of interorganizational relations," Quality & Quantity: International Journal of Methodology, Springer, vol. 47(3), pages 1665-1685, April.
    6. Peter Rousseau & Caleb Stroup, 2011. "Director Histories and the Pattern of Acquisitions," Vanderbilt University Department of Economics Working Papers 1124, Vanderbilt University Department of Economics.
    7. R. Andergassen, 2011. "Board of director collusion, managerial incentives and firm values," Working Papers wp795, Dipartimento Scienze Economiche, Universita' di Bologna.
    8. repec:hal:wpaper:hal-00842582 is not listed on IDEAS
    9. Cai, Ye & Sevilir, Merih, 2012. "Board connections and M&A transactions," Journal of Financial Economics, Elsevier, vol. 103(2), pages 327-349.
    10. Lorne N. Switzer & Yu Cao, 2011. "Shareholder interests vs board of director members' interests and company performance: A new look," Review of Accounting and Finance, Emerald Group Publishing, vol. 10(3), pages 228-245, August.
    11. Larcker, David F. & So, Eric C. & Wang, Charles C.Y., 2013. "Boardroom centrality and firm performance," Journal of Accounting and Economics, Elsevier, vol. 55(2), pages 225-250.
    12. Ishii, Joy & Xuan, Yuhai, 2014. "Acquirer-target social ties and merger outcomes," Journal of Financial Economics, Elsevier, vol. 112(3), pages 344-363.

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