Do Independent Directors Enhance Target Shareholder Wealth During Tender Offers?
Posted: 8 May 1998
Date Written: May 1996
Abstract
Authors' description of their article: Whereas the gains to target shareholders are usually large in tender offers, managers of takeover targets can have incentives to defeat such offers. We examine whether the presence of independent outside directors on boards of tender offer targets help to control such conflicts of interests. Using a sample of 169 tender offer contests that occurred during 1988 to 1992, we document that the gains to target shareholders are significantly greater when the target's board comprises a majority of independent outside directors. Contests involving independent target boards are associated with higher initial offer premiums and greater revisions in the intial premium. Further, takeover resistance and the use of poison pills by targets with independent boards are associated with greater gains to target shareholders. These results indicate that boards with a majority of directors who are independent outsiders help control agency problems between shareholders and managers when firms are targets of tender offer bids.
JEL Classification: G34
Suggested Citation: Suggested Citation