Costs And Benefits Of "Friendly" Boards During Mergers And Acquisitions

Provided by: University of Southern California
Topic: Software
Format: PDF
Although recent regulations call for greater board independence, finance theory predicts that independence is not always in the shareholders' interest. In situations where it is more important for the board to provide advice than to monitor the CEO, more independent directors can decrease firm value because the CEO is not willing to share inside information with independent directors. The author tests this prediction by examining the connection between takeover returns and board "Friendliness" using social ties between the CEO and board members as a proxy for less independent, more "Friendly" boards.

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