Corporate governance transfers: the case of mergers and acquisitions

Tanveer Hussain (), Abongeh A. Tunyi () and Jacob Agyemang ()
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Tanveer Hussain: University of Essex, Southend Campus
Abongeh A. Tunyi: University of Sheffield
Jacob Agyemang: University of Essex

International Journal of Disclosure and Governance, 2024, vol. 21, issue 4, No 3, 543-567

Abstract: Abstract We study changes in corporate governance around mergers and acquisitions by comparing the ex-post corporate governance of the combined firm with the ex-ante weighted average governance of the bidder and target. We find that when the quality of the bidder governance is better than the target before the acquisition, the ex-post corporate governance quality of the combined firm is better than the ex-ante weighted average of each firm. We document post-acquisition improvement in the combined firm’s board independence, audit committee independence, stock compensation, and minority shareholders protection, proposing that these firm-level attributes serve as potential channels to explain better corporate governance quality of the combined firm. The operating performance of the combined firm also improves when the bidder’s pre-deal governance quality is better than the target. Our results support the portability theory of corporate governance, suggesting that poorly governed targets are better off if acquired by better-governed bidders.

Keywords: Firm corporate governance; Combined firm; Mergers and acquisitions; Portability theory; Operating performance (search for similar items in EconPapers)
JEL-codes: G30 G34 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1057/s41310-023-00217-0

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