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Corporate governance, performance and take-overs: an empirical analysis of UK mergers

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  • Charlie Weir

Abstract

This paper analyses the relationship between the probability of being acquired, firm performance and governance structures. The acquired firms were all fully quoted on the London Stock Exchange and the acquisitions took place between 1990 and 1993. They were matched by a sample of non-acquired quoted companies. The sample was also analysed in terms of hostile and non-hostile acquisitions. It was found that the key governance characteristics which differentiated between acquired and nonacquired corporations related to the proportion of non-executive directors on the board and to whether or not the roles of chief executive officer and chairman were combined. It was also found that acquired firms were poor performers, which suggests that the internal governance structures had been ineffective. These results applied to hostile and non-hostile targets. The findings support the view that hostile acquisitions are disciplinary but cast doubt on the claim that non-hostile acquisitions are purely synergistic. The results also support the view that certain governance characteristics are effective substitutes for the take-over mechanism as a means of minimizing discretionary behaviour.

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  • Charlie Weir, 1997. "Corporate governance, performance and take-overs: an empirical analysis of UK mergers," Applied Economics, Taylor & Francis Journals, vol. 29(11), pages 1465-1475.
    • Handle: RePEc:taf:applec:v:29:y:1997:i:11:p:1465-1475
    DOI: 10.1080/000368497326291
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    Cited by:

    1. Zhang, Jianhong & Zhou, Chaohong & Ebbers, Haico, 2011. "Completion of Chinese overseas acquisitions: Institutional perspectives and evidence," International Business Review, Elsevier, vol. 20(2), pages 226-238, April.
    2. Hutchinson, Marion & Gul, Ferdinand A., 2004. "Investment opportunity set, corporate governance practices and firm performance," Journal of Corporate Finance, Elsevier, vol. 10(4), pages 595-614, September.
    3. Jonathan Seaton, 2009. "A nonparametric revealed preference test of optimal intra-firm resource allocation," Applied Economics, Taylor & Francis Journals, vol. 41(27), pages 3463-3476.
    4. Shao-Chi Chang & Ming-Tse Tsai, 2013. "The effect of prior alliance experience on acquisition performance," Applied Economics, Taylor & Francis Journals, vol. 45(6), pages 765-773, February.
    5. Charlie Weir & David Laing & Mike Wright, 2005. "Incentive Effects, Monitoring Mechanisms and the Market for Corporate Control: An Analysis of the Factors Affecting Public to Private Transactions in the UK," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 32(5-6), pages 909-943.
    6. Hutchinson, Marion & A Gul, Ferdinand, 2006. "The effects of executive share options and investment opportunities on firms’ accounting performance: Some Australian evidence," The British Accounting Review, Elsevier, vol. 38(3), pages 277-297.
    7. Charlie Weir & David Laing, 2003. "Ownership structure, board composition and the market for corporate control in the UK: an empirical analysis," Applied Economics, Taylor & Francis Journals, vol. 35(16), pages 1747-1759.
    8. Piet Eichholtz & Nils Kok, 2008. "How Does the Market for Corporate Control Function for Property Companies?," The Journal of Real Estate Finance and Economics, Springer, vol. 36(2), pages 141-163, February.
    9. Jianhong Zhang & Haico Ebbers, 2010. "Why Half of China’s Overseas Acquisitions Could Not Be Completed," Journal of Current Chinese Affairs - China aktuell, Institute of Asian Studies, GIGA German Institute of Global and Area Studies, Hamburg, vol. 39(2), pages 101-131.
    10. Henry, Darren, 2004. "Corporate governance and ownership structure of target companies and the outcome of takeovers," Pacific-Basin Finance Journal, Elsevier, vol. 12(4), pages 419-444, September.

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