Takeover Immunity, Takeovers, and the Market for Nonexecutive Directors |
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| Authors: | Rasha Ashraf Rajesh Chakrabarti† Richard Fu‡ Narayanan Jayaraman§ |
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| Institution: | Rasha Ashraf is an Assistant Professor of Finance at Georgia State University in Atlanta, GA.;Rajesh Chakrabarti is an Assistant Professor of Finance at the Indian School of Business, Gachibowli, Hyderabad 500 032, India.;Richard Fu is an Assistant Professor of Finance at San Jose State University in San Jose, CA.;Narayanan Jayaraman is a Professor of Finance at the Georgia Institute of Technology in Atlanta, GA. |
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| Abstract: | We develop and test two competing hypotheses that relate the market for nonexecutive directors to the level of external monitoring mechanism of the firms they serve. The Reward for Discretion Hypothesis posits that directors are valued more when they display discretion concerning their choice of antitakeover provision (ATP) levels rather than follow a rule. Alternatively, the CEO Risk Aversion Hypothesis implies that CEOs seek directors with inclination for uniform and high ATP levels. We examine how changes in ATP levels and approval of value creating/destroying acquisitions affect the careers of nonexecutive directors. Our results, based on data from about 3,000 listed US companies during 1994-2003, support the Reward for Discretion Hypothesis. |
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