Interlocking Directors: Impact on Canadian Merger and Acquisition Outcomes

• Main Author: Nawfal, Wissam
• Format: Others
• Published: 2011
• Online Access: http://spectrum.library.concordia.ca/7348/1/Nawfal_MSc_S2011.pdf; Nawfal, Wissam <http://spectrum.library.concordia.ca/view/creators/Nawfal=3AWissam=3A=3A.html> (2011) Interlocking Directors: Impact on Canadian Merger and Acquisition Outcomes. Masters thesis, Concordia University, John Molson School of Business.

This paper examines the effect(s) of interlocking boards on the outcomes of merger and acquisition transactions in Canada. Among the most significant results of this paper is evidence indicating that merger deals with an interlocking relationship, i.e. having one or more shared directors between the transacting firms, results in higher cumulative abnormal returns the target and acquiring firms. Merging firms with interlocking directorates were found to be more successful during the merger process, have a higher likelihood of transacting with cash, and have a significantly higher frequency of toeholds as well as higher toehold percentage ownership. This paper also presents a brief snapshot of the Canadian market for corporate control by documenting various firm and board characteristics, such as firm size, the fraction of inside, outside, grey and female directors serving on the average sample firm, as well as the average tenure of directors, and the average amount of share ownership held by directors, as well as how these characteristics influence the likelihood of interlocks between firms. A higher than average number of women and grey directors were found to have significantly positive effect on the propensity of interlocks, whereas, surprisingly, larger firm size had the reverse effect.