Do Independent Directors Enhance Target Shareholder Wealth During Tender Offers?

Posted: 8 May 1998

See all articles by James F. Cotter

James F. Cotter

Wake Forest University School of Business

Anil Shivdasani

University of North Carolina Kenan-Flagler Business School

Marc Zenner

Citigroup, Inc. - Investment Banking Division

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

Cotter, James F. and Shivdasani, Anil and Zenner, Marc, Do Independent Directors Enhance Target Shareholder Wealth During Tender Offers? (May 1996). Available at SSRN: https://ssrn.com/abstract=10106

James F. Cotter

Wake Forest University School of Business ( email )

Farrell Hall 384
P.O. Box 7659
Winston-Salem, NC 27109-7659
United States
336-758-7220 (Phone)

Anil Shivdasani (Contact Author)

University of North Carolina Kenan-Flagler Business School ( email )

Kenan-Flagler Business School
Chapel Hill, NC 27599-3490
United States
919-962-3182 (Phone)
919-962-2068 (Fax)

Marc Zenner

Citigroup, Inc. - Investment Banking Division ( email )

Salomon Smith Barney
388 Greenwich St., 24th Flr
New York, NY 10013
United States

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