There is an inherent conflict of interest between managers and shareholders when all or part of a public corporation is taken private and managers become major shareholders in the newly privatized firm. The role of outside directors who are independent of management is investigated to determine...

Banking law appears to limit the available pool of qualified directors. This study finds - in contrast to nonfinancial firms - a negative relation between abnormal returns and the proportion of independent outside directors on the board of directors of bidding banks.