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

Jens Hilscher and Elif Şişli-Ciamarra
Authors registered in the RePEc Author Service: Elif Sisli Ciamarra

Journal of Corporate Finance, 2013, vol. 19, issue C, 140-158

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 can 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)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (20)

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Working Paper: Conflicts of interest on corporate boards: The effect of creditor-directors on acquisitions (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:19:y:2013:i:c:p:140-158

DOI: 10.1016/j.jcorpfin.2012.10.001

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