The association between busy directors and acquisition performance

Sim, L; Wells, PA; Wyatt, A

The association between busy directors and acquisition performance

Sim, L Wells, PA

Wyatt, A

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Publisher:: AFAANZ
Publication Type:: Conference Proceeding
Citation:: 2009 AFAANZ Conference, 2009, pp. 1 - 47
Issue Date:: 2009-01

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Field	Value	Language
dc.contributor.author	Sim, L	en_US
dc.contributor.author	Wells, PA https://orcid.org/0000-0001-6822-4826	en_US
dc.contributor.author	Wyatt, A	en_US
dc.contributor.editor	Faff, R	en_US
dc.date	2009-07-05	en_US
dc.date.issued	2009-01	en_US
dc.identifier.citation	2009 AFAANZ Conference, 2009, pp. 1 - 47	en_US
dc.identifier.uri	http://hdl.handle.net/10453/14173
dc.description.abstract	This paper addresses the question of whether independent directors of the bidding firm are effective monitors during acquisitions and whether this effectiveness is impaired when the independent directors serve on multiple boards. The choice of the acquisition setting, where the board of directors is known to be engaged in active decision-making, facilitates a direct test of the role of independent directors as effective, external monitors of the boards activities. We employ three indicators of the bidding boards performance in making optimal acquisition decisions: the acquisition premium (benchmarked against subsequent performance), a new indicator comprising the conflicts of interest associated with the acquisitions (conflicted acquisitions), and the post-acquisition stock performance. The results suggest that more independent boards and busy independent directors on the bidding firms board are associated with more effective acquisition decisions by the board. However, busy independent directors are associated with less effective acquisition decisions when the bidding firm has higher free cash flows consistent with Jensen (1986). We also find that busy executive directors on the bidding firms board have no implications for the effectiveness of acquisition decisions unless the director is a busy chairperson or busy CEO both of whom are associated with less effective acquisition decisions. This paper contributes direct evidence on the effectiveness of bidding firm independent directors in their role as monitors and decision-makers.	en_US
dc.publisher	AFAANZ	en_US
dc.relation.ispartof	2009 AFAANZ Conference	en_US
dc.relation.ispartof	Accounting and Finance Association of Australia and New Zealand Conference	en_US
dc.title	The association between busy directors and acquisition performance	en_US
dc.type	Conference Proceeding
utslib.location	Australia	en_US
utslib.location.activity	Adelaide, Australia	en_US
utslib.for	150303 Corporate Governance and Stakeholder Engagement	en_US
dc.location.activity	Adelaide, Australia	en_US
pubs.embargo.period	Not known	en_US
pubs.organisational-group	/University of Technology Sydney
pubs.organisational-group	/University of Technology Sydney/Faculty of Business
pubs.organisational-group	/University of Technology Sydney/Faculty of Business/Accounting Discipline
pubs.organisational-group	/University of Technology Sydney/Strength - CCG - Centre for Corporate Governance
utslib.copyright.status	open_access
pubs.consider-herdc	false	en_US
pubs.place-of-publication	Australia	en_US
pubs.start-date	2009-07-05	en_US

Abstract:

This paper addresses the question of whether independent directors of the bidding firm are effective monitors during acquisitions and whether this effectiveness is impaired when the independent directors serve on multiple boards. The choice of the acquisition setting, where the board of directors is known to be engaged in active decision-making, facilitates a direct test of the role of independent directors as effective, external monitors of the boards activities. We employ three indicators of the bidding boards performance in making optimal acquisition decisions: the acquisition premium (benchmarked against subsequent performance), a new indicator comprising the conflicts of interest associated with the acquisitions (conflicted acquisitions), and the post-acquisition stock performance. The results suggest that more independent boards and busy independent directors on the bidding firms board are associated with more effective acquisition decisions by the board. However, busy independent directors are associated with less effective acquisition decisions when the bidding firm has higher free cash flows consistent with Jensen (1986). We also find that busy executive directors on the bidding firms board have no implications for the effectiveness of acquisition decisions unless the director is a busy chairperson or busy CEO both of whom are associated with less effective acquisition decisions. This paper contributes direct evidence on the effectiveness of bidding firm independent directors in their role as monitors and decision-makers.

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http://hdl.handle.net/10453/14173