Ownership Structure, Board Composition and the Market for Corporate Control in the UK : An Empirical Analysis

This paper analyses the board composition and ownership structures of a sample of companies that have been acquired and those of a control sample that have not. We find significant governance differences between acquired firms and the control sample. Firms with the following characteristics were more likely to be acquired: they had the same person acting as CEO and chair, a higher proportion of non-executive directors, larger institutional shareholders and higher director shareholdings. An analysis of small firms also found evidence of higher CEO shareholdings. We also find that treating all take-overs as a single group leads to model mis-specification which does not identify the incentive effects of board and CEO shareholdings present in non-hostile acquisitions. These results are consistent with two agency-derived hypotheses, financial incentives and effective monitoring. We also find that targets exhibit lower growth potential but do not have worse accounting performance