Effectiveness of Bidders Internal Governance Structure

Abstract

This paper examines the effectiveness of bidders’ internal governance mechanisms after controlling for the disciplinary role of the market for corporate control. In general, based on the full data sample, the evidence presented in this paper fails to refute the view that firms choose their internal governance mechanisms in a value-maximizing way. On average, bidders' anti-takeover provisions show no significant effect on the returns to bidders, and fail to significantly affect the lack of any significant relationship between board structure – board size and board independence – and the returns to bidders. However, for the sub-sample comprising bidders with high levels of anti-takeover provisions, board independence is found to be negatively related to the returns to bidders with high levels. One interpretation of this finding is that the effectiveness – benefits relative to the costs – of independent boards diminishes at high levels of anti-takeover provisions. For the sub-sample comprising bidders without classified boards, board size is positively related to the returns to bidders, indicating that the benefits to increasing board size appears to outweigh the costs for bidders without a classified board structure.