Expertise on Boards - Acquiring Firms and The Market for Directors with Merger Experience

Research on the structure of corporate boards of directors has recently begun to examine individual directors and the role of the experience and expertise they bring to the board. The three essays of this dissertation focus on acquisition experience on boards of directors, the recruitment of these experienced directors from the market for directors, and the effects of acquisition experience on acquisition outcomes. The first essay examines the composition of boards of acquiring firms and non-acquiring firms and tests the argument that firms structure boards based on the firm’s advisory and monitoring needs. We document significant differences between the boards of acquiring firms and non‐acquiring firms. Consistent with the findings of prior research that firms choose boards based on the firm’s advisory and monitoring needs, we find that acquiring firms have more independent directors with acquisition experience. They also have directors who have been involved in larger deals. Frequent acquirers and firms engaging in large acquisitions have even deeper experience on their boards. However, we also find that acquiring firms tend to have directors who have previously been involved in value‐decreasing acquisitions while non‐acquiring firms have those who were involved in value-increasing acquisitions. In the second essay, we examine this using recruitment of new directors. We show that experienced directors tend to join large firms that already have an abundance of experience on the board. Acquiring firms, particularly those where agency problems are most severe, systematically recruit those with value-decreasing experience. We conclude that agency reasons play a part in firms choosing directors. In the third essay, we study the effects of acquisition experience on the board on acquisition outcomes. We show that independent directors with CEO acquisition experience improve shareholder value in deals involving public targets but only if they are high quality directors. They reduce value in small deals involving private targets. Independent directors with experience on the boards of other acquiring firms do not improve value in large deals. Firms with low quality directors pay higher premiums to the target firm shareholders. Firms with acquisition experience complete more deals, including deals in which the acquirer returns are negative. We also find some evidence that bonuses paid to the acquiring firm CEOs are highest when the boards have low quality directors. Overall, our results suggest that shareholders of acquiring firms have better outcomes with no experience on the board, than with low quality directors.

Many thanks to Tirimba’s Dissertation Committee: • Committee Chair: Samuel Szewczyk - Associate Professor • Committee Co-Chair: George Tsetsekos - Dean Emeritus and Francis Professor of Finance • Committee Member: Michael Gombola - Professor of Finance • Committee Member: Jie Cai - Associate Professor • Committee Member: Seung Hee Choi - Associate Professor of Finance, The College of New Jersey