Multiple directorships and acquirer returns

To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jbankfin.2010.01.009 Byline: Seoungpil Ahn (a), Pornsit Jiraporn (b)(c), Young Sang Kim (d) Keywords: Multiple directorships; Agency theory; Board appointments; Mergers and acquisitions Abstract: This paper examines the impact of multiple directorships on stockholder wealth around the announcements of mergers and acquisitions. Grounded in agency theory, we argue that multiple directorships affect the quality of managerial oversight and thus influence agency conflicts in acquisition decisions. We show that acquiring firms where directors hold more outside board seats experience more negative abnormal returns. This adverse effect, nonetheless, does not extend across the entire range of multiple directorships. Rather, the detrimental impact is significant only when the number of outside board seats surpasses a certain threshold. We interpret this result as suggesting that directors serving on multiple boards allow value-destroying acquisitions when they become too busy beyond a certain point, and the effect of directors' busyness on acquisition performance appears to be nonlinear. We employ several alternative definitions of directors' busyness and obtain consistent results. Author Affiliation: (a) Sogang Business School, Sogang University, Republic of Korea (b) Great Valley School of Graduate Professional Studies, Pennsylvania State University, USA (c) Thammasat Business School, Thammasat University, Thailand (d) Haile/US Bank College of Business, Northern Kentucky University, USA Article History: Received 8 February 2009; Accepted 14 January 2010 Article Note: (footnote) [star] We thank Yong-Cheol Kim, Vassil Mihov, Imants Paeglis, Mark D. Walker, seminar participants at the National University of Singapore, the FMA annual conference 2007 at Orlando, and the Asian FMA/NFA 2008 at Yokohama, and the anonymous referee for helpful comments and suggestions.