Conflicts of interest on corporate boards: The effect of creditor-directors on acquisitions

Jens Hilscher and Elif Sisli-Ciamarra ()
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Elif Sisli-Ciamarra: International Business School, Brandeis University
Authors registered in the RePEc Author Service: Elif Sisli Ciamarra

No 34, Working Papers from Brandeis University, Department of Economics and International Business School

Abstract: This paper investigates the effects on acquisitions of creditor-director presence on corporate boards. Using a hand-collected dataset for boards of large U.S. corporations, we find that companies with creditor-directors are more likely to engage in acquisitions with attributes that are unfavorable to shareholders and favorable to creditors (more diversifying and fewer cash-financed acquisitions). Consistent with these patterns, acquisition announcements are associated with lower shareholder value, higher creditor value, and lower overall firm value when a creditor is present. These results support the hypothesis that conflicts of interest between shareholders and creditors result in value-destroying acquisitions. In addition, commercial bankers with no lending relationship are not affected by conflicts of interest. Where appropriate, our estimation strategy takes into account that there may be self selection of bankers onto corporate boards.

Keywords: Shareholder-Creditor Conflicts; Acquisitions; Board of Directors; Bankers on Boards; Corporate Governance; Credit Market Reaction (search for similar items in EconPapers)
JEL-codes: G21 G34 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2011-08
New Economics Papers: this item is included in nep-ban and nep-bec
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http://www.brandeis.edu/economics/RePEc/brd/doc/Brandeis_WP34.pdf First version, 2011 (application/pdf)

Related works:
Journal Article: Conflicts of interest on corporate boards: The effect of creditor-directors on acquisitions (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:brd:wpaper:34

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