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Board Interlocks and the Propensity to be Targeted in Private Equity Transactions

  • Toby Stuart
  • Soojin Yim
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    In this paper, we examine the propensity for U.S. public companies to become targets for private equity-backed, take-private transactions. We consider the characteristics of 483 private equity-backed deals in the 2000-2007 period relative to public companies, and find that, in addition to the financial drivers studied in previous works, board characteristics and director networks are also associated with deal generation. We find that a company that has a director who has had LBO experience through prior board service is ~40% more likely to receive a private equity offer, and that the strength of this effect varies with the influence of the director and the quality of the prior LBO experience. This effect is robust to the most likely alternative explanations and supports the idea that directors and social networks play an influential role in change-of-control transactions.

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    File URL: http://www.nber.org/papers/w14189.pdf
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    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 14189.

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    Date of creation: Jul 2008
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    Publication status: published as Journal of Financial Economics Volume 97, Issue 1, July 2010, Pages 174–189
    Handle: RePEc:nbr:nberwo:14189
    Note: CF
    Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
    Phone: 617-868-3900
    Web page: http://www.nber.org
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    1. Halpern, Paul & Kieschnick, Robert & Rotenberg, Wendy, 1999. "On the Heterogeneity of Leveraged Going Private Transactions," Review of Financial Studies, Society for Financial Studies, vol. 12(2), pages 281-309.
    2. Lehn, Kenneth & Poulsen, Annette, 1989. " Free Cash Flow and Stockholder Gains in Going Private Transactions," Journal of Finance, American Finance Association, vol. 44(3), pages 771-87, July.
    3. Renneboog, L.D.R. & Simons, T., 2005. "Public-to-Private Transactions : LBOs, MBOs, MBIs and IBOs," Discussion Paper 2005-023, Tilburg University, Tilburg Law and Economic Center.
    4. Dooley, Peter C, 1969. "The Interlocking Directorate," American Economic Review, American Economic Association, vol. 59(3), pages 314-23, June.
    5. Guido Imbens, 2000. "Efficient Estimation of Average Treatment Effects Using the Estimated Propensity Score," Econometric Society World Congress 2000 Contributed Papers 1166, Econometric Society.
    6. David T. Robinson & Toby E. Stuart, 2007. "Network Effects in the Governance of Strategic Alliances," Journal of Law, Economics and Organization, Oxford University Press, vol. 23(1), pages 242-273, April.
    7. Yael V. Hochberg & Alexander Ljungqvist & Yang Lu, 2007. "Whom You Know Matters: Venture Capital Networks and Investment Performance," Journal of Finance, American Finance Association, vol. 62(1), pages 251-301, 02.
    8. Eliezer M. Fich & Anil Shivdasani, 2006. "Are Busy Boards Effective Monitors?," Journal of Finance, American Finance Association, vol. 61(2), pages 689-724, 04.
    9. Kenneth Lehn & Annette Poulsen, 1989. "Free Cash Flow and Stockholder Gains in Going Private Transactions," Journal of Finance, American Finance Association, vol. 44(3), pages 771-787, 07.
    10. Hallock, Kevin F., 1997. "Reciprocally Interlocking Boards of Directors and Executive Compensation," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 32(03), pages 331-344, September.
    11. Robert L. Kieschnick, Jr, 1998. "Free Cash Flow and Stockholder Gains in Going Private Transactions Revisited," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 25(1&2), pages 187-202.
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