Board composition, ownership structure, and hostile takeovers

Abstract

This paper examines whether differences in the structure of the board of directors and equity ownership contribute to the incidence of hostile takeovers. Evidence from a sample of completed and abandoned hostile takeover attempts that occurred during 1980–1988 indicates that, relative to a control sample, outside directors in hostile targets have lower ownership stakes and hold fewer additional outside directorships. Ownership by blockholders unaffiliated with management raises and that by affiliated blockholders decreases the likelihood of a hostile takeover attempt. These results suggest that the board of directors and hostile takeovers are substitute mechanisms and that unaffiliated blockholdings and hostile takeovers are complementary mechanisms for corporate control.