The relationship between interlocking directorate and stock market reaction to international merger and acquisition announcements: the moderating effect of cultural distance

Abstract

Directors embedded in a network are likely to gain various resources from the external environment. However, directors with too many outside board seats could be too busy to properly exert their functions. Prior studies investigating the role of directors mostly focus on within-firm characteristics. Extending the literature, we examine characteristics outside a firm's boundary by investigating the impact of interlocking directorate on the market value of International Merger and Acquisition (IMA) announcements. We find an inverted U-shaped relationship between multiple directorships and the announcement returns of IMAs, revealing that the market value of IMAs initially improves and then declines with increasing directorships. This curvilinear relationship is further positively moderated by cultural distance. Our study not only highlights the importance of considering the benefits and costs of multiple directorships and how these affect investors' assessments of corporate cross-border acquisition strategies, but also shows how cultural distance can affect the curvilinear relationship.