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Target's Corporate Governance and Bank Merger Payoffs By Elijah Brewer III,
William E. Jackson III, and Julapa A. Jagtiani |
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Abstract Commercial bank merger and acquisition (M&A)
transactions are especially informative for analyzing the impact of
differing corporate governance structures on the balance of corporate
control between managers and shareholders. We exploit these special
characteristics to investigate the balance of control between top-tier
managers and shareholders using data from bank M&A transactions over the
period 1990-2004. Unlike research on non-financial firms, the impacts of
independent directors, managerial share ownership, and independent
blockholders on bank merger purchase premiums in this environment are likely
to be measured more consistently because of industry operating standards and
regulations. It is also the case that research on banks in this area has not
received adequate attention. Our model controls for risk characteristics of
the target and the acquiring banks, the deal characteristics, and the
economic environment. The results are robust. Our results are consistent
with those found for non-financial firms, and are consistent with the
hypothesis that independent directors could provide an important internal
governance mechanism for protecting shareholders’ interests especially in
large scale transactions such as mergers and takeovers. We also find results
consistent with the conflict of interest argument, where top-tier managers
tend to trade potential takeover gains in return for their own personal
benefits, such as job security and other employment related perquisites. Our
overall findings would support policies that promote independent outside
directors on the board of commercial banking firms in order to provide
protection for shareholders and investors at large.
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