Ownership structure, board composition and the market for corporate control in the UK: an empirical analysis

Charlie Weir and David Laing

Applied Economics, 2003, vol. 35, issue 16, 1747-1759

Abstract: This paper analyses the board composition and ownership structures of a sample of companies that have been acquired and those of a matching control sample that have not. We find significant governance differences between acquired firms and the control sample. Firms with the following characteristics were more likely to be acquired: they had the same person acting as CEO and chair, a higher proportion of non-executive directors, larger institutional shareholdings and higher director shareholdings. An analysis of small firms also found evidence of higher CEO shareholdings. We also find that treating all take-overs as a single group leads to a model mis-specification which does not identify the incentive effects of board and CEO shareholdings present in non-hostile acquisitions. These results are consistent with two agency-derived hypotheses, financial incentives and effective monitoring. We also find that targets exhibit lower growth potential but do not have worse accounting performance.

Date: 2003
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DOI: 10.1080/0003684032000155454

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