Global board reforms and corporate acquisition performance

Thomas To, Eliza Wu and Diya Zhao

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: This paper examines the effect of board reforms on corporate acquisition performance using data from 31 countries. Using a difference-in-differences design, we find that the implementation of board reforms in the acquirer's country significantly increases acquirer returns. The increase is driven by reforms involving board independence, but not reforms involving audit committee independence nor the separation of CEO and board chair roles. Further analysis shows that the uplift in acquisition performance following improvements in board independence is strongest in acquirers with more agency problems. The ‘Board reform strengthening’ effect is concentrated in larger acquirers, with more free cash flows, executing large and public-target deals and operating in countries with ex-ante poor investor protection. The empirical evidence indicates that reforming board independence effectively alleviates agency problems between managers and shareholders and improves corporate acquisition performance.

Keywords: agency problem; board reforms; corporate governance; investor protection; mergers and acquisitions (search for similar items in EconPapers)
JEL-codes: G30 G34 G38 K22 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2024-08-01
New Economics Papers: this item is included in nep-cfn
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Published in Journal of Corporate Finance, 1, August, 2024, 87. ISSN: 0929-1199

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Journal Article: Global board reforms and corporate acquisition performance (2024)
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