| We find that the decision by a potential acquirer to complete or cancel an announced acquisition proposal is sensitive to new information generated after the announcement of the acquisition. Both the acquirer and target's cumulative abnormal returns (CAR) over different windows after the announcement date predict the probability of completion of the acquisition. We partition the sample into two sub-samples based on whether or not the same individual holds the positions of both the CEO and the Chairman of the board in the acquiring firm, and compare the above results. Consistent with the arguments of Samuelson and Rosenthal (1986), in both sub-samples, target CARS predict the completion probability. However, the acquirer CARS are positively related to the completion probability only for the sub-sample in which different individuals hold the positions of CEO and board Chairman. These latter results are consistent with the view that when the same individual holds both positions, the board is less effective in monitoring the CEO, and managerial objectives are likely to drive acquisition activity (Lang, Stulz and Walkling (1991), Morck, Shleifer and Vishny (1990)). Deal cancellations also have significant impact on subsequent disciplinary events---but only for firms without independent leadership structure. This suggests that cancellations represent a more fundamental change in the way the company is governed for these firms, and are possibly imposed on management. |
