Governance mandates, outside directors, and acquirer performance.

We use hand-collected board data around the issuance of two distinct government-led board structure mandates in the U.K. to establish the effect of outside directors on acquirer performance. Increases in outside director representation are associated with better acquirer returns in deals involving listed targets, but not when the target is private. These results are consistent with greater outside director reputational exposure when publicity is high. While we do not advocate mandated board structures, our evidence suggests that the particular diktats we examine were associated with improved acquirer performance in public firm takeovers. We present corroborating evidence from the U.S. around a similar reform period

Social capital, syndication, and investment performance: evidence from PE investing in LBOs

This study examines the influence of social capital on leveraged buyout (LBO) investments. Exploiting proprietary global private equity data at the investment-level for leveraged buyouts, we find that alumni of Harvard's MBA program are more inclined to co-invest and form syndicates in LBO with each another. The phenomenon of Crimson pairing manifests in deals that involve uneven investments in co-investor capital, necessitating trust to alleviate agency costs and enabling investors to diversify their portfolios. The outcome of Crimson pairing is an increase in value and investment returns relative to all other typical LBO syndication partnerships

An empirical investigation of the speed of information aggregation: A study of IPOs

peer reviewedThis paper researches the microstructure of the price process after the IPO, to gain insight into the information aggregation process of secondary market trading. We investigate a sample of 2,040 US IPOs between 1993 and 2000 and find that it takes approximately one week for all IPO-related information to be reflected in the market price. Using a novel methodology to gauge event-time volatility, we attribute this fast information aggregation to the bookbuilding process and to the extraordinary liquidity in the IPO aftermarket. © 2010 Inderscience Enterprises Ltd

Board Composition, Corporate Performance, and the Cadbury Committee Recommendation

During the 1990s and beyond, countries around the world have witnessed calls and/or mandates for more outside directors on publicly-traded companies’ boards even though extant studies find no significant correlation between outside directors and corporate performance. We examine the connection between changes in board composition and corporate performance in the UK over the interval 1989–1996, a period that surrounds publication of the Cadbury Report calling for at least three outside directors for publicly-traded corporations. We find that companies that added directors to conform with this standard exhibited a significant improvement in operating performance both in absolute terms and relative to various peer-group benchmarks. We also find a statistically significant increase in stock prices around announcements that outside directors are added in conformance with this recommendation. We do not necessarily endorse mandated board structures, but the evidence appears to be that such a mandate was associated with an improvement in performance in UK companies

Outside Directors and Corporate Board Decisions

Between 1993 and 2000 at least 18 countries saw publication of guidelines that propose minimum representation of outside directors on corporate boards. The apparent premise underlying this movement is that boards with significant outside directors will make different and, perhaps, better decisions than boards dominated by inside directors. As the first-mover in this movement, the U.K. provides a laboratory for a “natural experiment” to examine this presumption empirically. We investigate one important board task - - the appointment of the CEO - - to determine whether boards are more likely to appoint an outside CEO after they have increased the representation of outside directors to comply with the exogenously imposed standards. We find that the (coerced) increase in outside directors leads to an increase in the likelihood of an outside CEO appointment. Additionally, announcement period stock returns indicate that investors appear to view appointments of outside CEOs as good news. Apparently, boards with more outside directors make different (and perhaps better) decisions

Dominant Shareholders, Corporate Boards and Corporate Value: A Cross-Country Analysis

We investigate the relation between corporate value and the fraction of independent directors in 799 firms with a dominant shareholder across 22 countries. We find a positive relation, especially in countries with weak legal protection for shareholders. The findings suggest that a dominant shareholder, were he so inclined, could offset, at least in part, the documented value discount associated with weak country-level shareholder protection by appointing an ‘independent’ board. The cost to the dominant shareholder of doing so is the loss in perquisites associated with being a dominant shareholder. Thus, not all dominant shareholders will choose independent boards

The Cadbury Committee, Corporate Performance and Top Management Turnover

In December 1992, the Cadbury Committee published the Code of Best Practice which recommended that boards of publicly-traded UK corporations include at least three outside directors and that the positions of the chairman of the board and chief executive officer not be held by a single individual. The underlying presumption was that these government-sponsored recommendations would lead to enhanced board oversight. As a test of that presumption, we analyze the relation between top management turnover and corporate performance. We find that CEO turnover increased following publications of the Code, that the relationship between CEO turnover and performance was strengthened following publication of the Code, and that the increase in the sensitivity of turnover to performance was concentrated among firms that adopted the Cadbury Committee\u27s recommendation