| Problem. Excessive premiums are a leading cause of long-term value loss in acquisitions. Numerous studies have sought to find the underlying cause of excessive premiums paid for acquisitions. This study was undertaken to investigate the relationships between an acquiring firm's board vigilance factors and premiums paid in acquisitions.;Method. A total of 80 U.S.-based, completed acquisition transactions, announced between January 1, 2004, and December 31, 2007, were examined. The acquiring and target firms selected for this study were both publicly held and broadly related at the two-digit SIC level. Financial, government and agencies, energy and power, and real estate firms were excluded. Deals selected were valued at ;Results. Pearson correlation tests for board independence, CEO duality, and outside directors' tenure were not significant at the .05 level (p>.05). The Pearson correlation test for outside directors' ownership was marginally significant at the .05 level and positively related. This finding is consistent with the Hubbard and Palia (1995) study, which suggested that at higher levels of ownership, managers hold a large non-diversified portfolio and, therefore, will be willing to pay a high premium for risk-reducing acquisitions. ANOVA tests to compare differences in means of acquisition premiums were not significant; however, under certain board measurement constructs, they were significant. ANOVA tests comparing means of acquisition premiums between two extreme sets of board profiles were also insignificant. Additional multiple regression tests revealed statistically significant relationships between outside directors' ownership and acquisition premium. In addition, statistically significant correlations between CEO duality and outside directors' tenure support corporate governance studies which show a strong correlation between these two board components, (p<.005). Furthermore, statistically significant relationships between board independence and outside directors' ownership suggest that board independence may have an indirect influence on premium, providing potentially useful data for the corporate governance community. Finally, it was suggested that the level or percentage of ownership of the company stock, i.e., the proportion of non-diversified portfolio, held by the outside directors could also have an influence on board independence. |
