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Ownership structure, board composition and the market for corporate control in the UK: an empirical analysis

  • Charlie Weir
  • David Laing
Registered author(s):

    This paper analyses the board composition and ownership structures of a sample of companies that have been acquired and those of a matching control sample that have not. We find significant governance differences between acquired firms and the control sample. Firms with the following characteristics were more likely to be acquired: they had the same person acting as CEO and chair, a higher proportion of non-executive directors, larger institutional shareholdings and higher director shareholdings. An analysis of small firms also found evidence of higher CEO shareholdings. We also find that treating all take-overs as a single group leads to a model mis-specification which does not identify the incentive effects of board and CEO shareholdings present in non-hostile acquisitions. These results are consistent with two agency-derived hypotheses, financial incentives and effective monitoring. We also find that targets exhibit lower growth potential but do not have worse accounting performance.

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    File URL: http://www.tandfonline.com/doi/abs/10.1080/0003684032000155454
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    Article provided by Taylor & Francis Journals in its journal Applied Economics.

    Volume (Year): 35 (2003)
    Issue (Month): 16 ()
    Pages: 1747-1759

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    Handle: RePEc:taf:applec:v:35:y:2003:i:16:p:1747-1759
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    1. Charlie Weir & David Laing & Phillip J. McKnight, 2002. "Internal and External Governance Mechanisms: Their Impact on the Performance of Large UK Public Companies," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 29(5&6), pages 579-611.
    2. G. William Schwert, 1999. "Hostility in Takeovers: In the Eyes of the Beholder?," NBER Working Papers 7085, National Bureau of Economic Research, Inc.
    3. Janice C. Eberly & Andrew B. Abel, 2004. "Q Theory Without Adjustment Costs & Cash Flow Effects Without Financing Constraints," 2004 Meeting Papers 205, Society for Economic Dynamics.
    4. Julian Franks & Colin Mayer, 2001. "Ownership and Control of German Corporations," OFRC Working Papers Series 2001fe11, Oxford Financial Research Centre.
    5. Hadlock, Charles & Houston, Joel & Ryngaert, Michael, 1999. "The role of managerial incentives in bank acquisitions," Journal of Banking & Finance, Elsevier, vol. 23(2-4), pages 221-249, February.
    6. Nuttal, R., 1999. "Takeover Likelihood Models for UK Quoted Companies," Economics Papers 1999-w6, Economics Group, Nuffield College, University of Oxford.
    7. Leech, D. & Leahy, J., 1989. "Ownership Structure, Control Type Classifications And The Performance Of Large British Companies," The Warwick Economics Research Paper Series (TWERPS) 345, University of Warwick, Department of Economics.
    8. Ronan G. Powell, 1997. "Modelling Takeover Likelihood," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 24(7&8), pages 1009-1030.
    9. Randall Morck & Andrei Shleifer & Robert W. Vishny, 1987. "Characteristics of Hostile and Friendly Takeover Targets," NBER Working Papers 2295, National Bureau of Economic Research, Inc.
    10. Steven Young, 2000. "The Increasing Use of Non-Executive Directors: Its Impact on UK Board Structure and Governance Arrangements," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 27(9&10), pages 1311-1342.
    11. Ronan G. Powell, 2001. "Takeover Prediction and Portfolio Performance: A Note," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 28(7&8), pages 993-1011.
    12. Brickley, J.A. & Coles, J.L. & Jarrell, G., 1995. "Corporate Leadership Structure: On the Separation of the Positions of CEO and Chairman of the Board," Papers 95-02, Rochester, Business - Financial Research and Policy Studies.
    13. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
    14. Fama, Eugene F & Jensen, Michael C, 1983. "Separation of Ownership and Control," Journal of Law and Economics, University of Chicago Press, vol. 26(2), pages 301-25, June.
    15. Franks, Julian & Mayer, Colin, 1996. "Hostile takeovers and the correction of managerial failure," Journal of Financial Economics, Elsevier, vol. 40(1), pages 163-181, January.
    16. Hotchkiss, Edith S. & Mooradian, Robert M., 1998. "Acquisitions as a Means of Restructuring Firms in Chapter 11," Journal of Financial Intermediation, Elsevier, vol. 7(3), pages 240-262, July.
    17. Fama, Eugene F, 1980. "Agency Problems and the Theory of the Firm," Journal of Political Economy, University of Chicago Press, vol. 88(2), pages 288-307, April.
    18. Ambrose, Brent W. & Megginson, William L., 1992. "The Role of Asset Structure, Ownership Structure, and Takeover Defenses in Determining Acquisition Likelihood," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 27(04), pages 575-589, December.
    19. Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-29, May.
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