Is there a “Dark Side” to Monitoring? Board and Shareholder Monitoring Effects on M&A Performance Extremeness |
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Authors: | Maria L Goranova Richard L Priem Hermann A Ndofor Cheryl A Trahms |
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Institution: | 1. Organizations & Strategic Management, Sheldon B. Lubar School of Business, University of Wisconsin–Milwaukee, Milwaukee, Wisconsin;2. Management, Entrepreneurship and Leadership Department, Neeley School of Business, Texas Christian University, Fort Worth, Texas;3. Management and Entrepreneurship, Kelley School of Business, Indiana University, Indianapolis, Indiana;4. Management, College of Business, Minnesota State University, Mankato, Minnesota |
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Abstract: | Research summary: W e investigate the effects of monitoring by boards of directors and institutional shareholders on merger and acquisition (M&A ) performance extremeness using a sample of M&A deals from 1997 to 2006. Both governance research and legal reforms generally have espoused a “raise all boats” view of monitoring. We instead investigate whether monitoring may serve as a double‐edged sword that limits CEO discretion to undertake both value‐destroying M&A deals and value‐creating ones. Our findings indicate that the relationship between monitoring and M&A performance is more complex than previously believed. Rather than “raising all boats” in a shift towards better M&A outcomes, monitoring instead is associated with lower M&A losses, but also with lower M&A gains . Managerial summary: M ergers and acquisitions (M&A s) are a quintessential corporate activity. There were $3.8 trillion worth of M&A deals in 2015, despite scholars and practitioners reporting that M&A s often perform poorly. We question the widespread belief that more vigilant monitoring by boards of directors and large shareholders will raise M&A performance, overall. Put differently, does monitoring constrain CEO s' discretion to pursue bad deals, while simultaneously encouraging them to pursue good ones? We find that monitoring limits both large M&A losses and large M&A gains. Contrary to widely held beliefs, our results indicate that constraining executives' ability to pursue value‐destroying M&A deals does not simultaneously encourage or enable CEO s to pursue value‐creating deals . Copyright © 2017 John Wiley & Sons, Ltd. |
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Keywords: | corporate governance M&A performance extremeness monitoring board of directors institutional shareholders |
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