Director Affiliations and Shareholder Wealth during the Announcement of Acquisitions

Abstract

Expanding on earlier findings that outside director characteristics are significant factors on firm performance, this paper focuses on the significance of their leadership role and affiliations. Examining market reaction to acquisitions, we find acquirers with busy outside directors holding a CEO title in S and P 500 firms or holding diversified directorships obtain higher cumulative abnormal returns during the announcement date than firms with other busy outside directors. While multiple directorships could lead to ineffective monitoring, our finding highlights the potential advantage of certain busy outside directors. Large firm leadership position and diverse experiences appear to be associated with significant positive impact. Key words: Board of directors, Multiple directorships, Mergers and acquisitions