Noel O'Sullivan

The Impact of Acquisitions on Firm Performance: A Review of the Evidence

This paper presents a review of empirical research on the impact of acquisitions on firm performance. The evidence suggests that, in the short run, acquisitions have at best an insignificant impact on shareholder wealth. Long-run performance analysis reveals overwhelmingly negative returns, while the evidence using accounting performance measures is mixed. The review also examines the impact of bid characteristics on performance. The acquisition of hostile targets, transactions that are paid for with cash and acquisitions of larger targets are associated with superior (or at least less negative) performance, while there is mixed evidence on the benefits of related acquisitions. A number of recent studies find that acquirers with superior pre-bid performance tend to experience significant under performance in the post-bid period.

Managers as Monitors: An Analysis of the Non-executive Role of Senior Executives in UK Companies

An important aspect of current governance practice is the use of non-executive directors to monitor the behaviour of company management. This paper examines the extent to which senior executives are utilized as non-executives in large UK companies. The results suggest that executive directors are not an important source of non-executive directors. The average number of non-executive directorships held by each executive is 0.22. Indeed, 85% of executives hold no additional directorships. The holding of non-executive directorships is positively related to the strength of board monitoring in the executives company, executive tenure and company size. Executives in companies with greater growth opportunities and operating in regulated industries are less likely to hold non-executive directorships.

The Determinants and Consequences of Abandoned Takeovers

Takeover activity has attracted a great deal of academic attention over the past three decades. Much of this interest has focused on the study of completed takeovers with a particular interest in seeking to understand the impact of takeover activity on the wealth of both shareholders in acquired and bidding firms. Unlike their completed counterparts, abandoned takeovers have received relatively little academic attention. This is surprising since a significant proportion of takeover bids are unsuccessful. This paper seeks to address the imbalance by providing a comprehensive survey of the takeover failure literature. The paper focuses on two aspects of the literature: First, we discuss and review the factors likely to influence takeover outcome. Second, we examine the consequences of takeover abandonment from the perspective of targets and bidders. We also identify a number of areas where future research may seek to improve further our understanding of the causes and consequences of takeover abandonment. Copyright 2001 by Blackwell Publishers Ltd

Board Composition and Performance in Life Insurance Companies

The past decade has witnessed a renewed emphasis on the quality of board governance worldwide. In the wake of a series of governance reports, particular interest has focused on the role and effectiveness of non-executive board members. This study seeks to add to our understanding of the governance role of non-executive directors by examining the use and usefulness of non-executives in insurance companies. The focus on the insurance industry, which includes both proprietary (stock) and mutual companies, allows us to examine the importance of board governance in the context of different ownership structures. Furthermore, by focusing our study in a period prior to the widespread adoption of the recommendations of the Cadbury Report by UK companies, our findings should more accurately capture the true role of board composition in a less-prescriptive governance environment. Our results suggest that mutual insurers utilize a greater proportion of non-executive directors and are less likely to have CEO/Chairman duality than their proprietary counterparts. This evidence is consistent with mutuals using stronger board governance to compensate for weaker ownership control. Proprietary companies, which are subject to stronger shareholder and capital market control, place less reliance on non-executive monitoring. Using a number of performance measures, we find no significant difference in the behaviour of mutual and proprietary companies with the exception of executive remuneration, (which is significantly higher for proprietary companies); furthermore there is no evidence that mutuals have outperformed their stock company rivals. Overall, our findings suggest that insurance companies emphasize different governance mechanisms depending on the specific monitoring problems they face.

Board composition, ownership structure and hostile takeovers: some UK evidence

This paper examines the relationship between internal and external control mechanisms in a sample of hostile takeover targets and a control group of non-target firms in the UK for the period 1989–93. The paper investigates whether there are significant differences in board composition, executive ownership and external shareholder control between the two groups. We find that hostile targets are more likely to have different individuals in the roles of chairman and CEO but employ non-executives with fewer additional directorships than non-targets. Executive share ownership is significantly lower in targets, suggesting that hostile bids are more likely to be pursued when target managers possess insufficient equity either to defeat the bid or make the bid too expensive for bidders. We find some evidence that institutional and unaffiliated blockholders in smaller targets help managers defeat unwanted bids.

Internal versus External Control: An Analysis of Board Composition and Ownership in UK Takeovers

This paper examines the relationship between board composition, ownership structure and takeovers in the UK in the period 1989–1993. We compare board composition and ownership characteristics for a sample of 166 takeover targets with a matched sample of nontarget firms. We further disaggregate our sample depending on target managements attitude to the bid as well as the eventual outcome of the bid. We find little difference between board composition and ownership structure between all targets and the control group of nontargets. However, when we disaggregate the samples, we find that hostile targets are more likely to have different individuals in the role of chairman and CEO, and exhibit significantly lower levels of managerial ownership compared to both the control group of nontargets and targets of friendly takeovers. We also find that managerial ownership is positively related to takeover success. Overall, our results support the findings of a number of recent studies in the US by highlighting the important role managerial share ownership plays in the takeover process.

The impact of board composition and ownership on the nature and outcome of UK takeovers

The purpose of this paper is to provide an insight on the relationship between internal governance and the nature and outcome of UK takeovers. The paper examines the impact of board composition and leadership, managerial ownership and external shareholder control on management’s attitude and eventual outcome of 331 takeover bids. We find the likelihood of a hostile reaction negatively related to the degree of managerial share ownership and positively related to target size. The likelihood of takeover success is positively related to managerial ownership. Consistent with recent research in the US, our study confirms the important role of managerial ownership in the UK takeover process.

Endogeneity: How Failure to Correct for it can Cause Wrong Inferences and Some Remedies

Although researchers in business and management are becoming increasingly aware of the importance of endogeneity affecting regression analysis, they frequently do not have the right methodological toolkit to adjust for this issue. In this paper we discuss such a toolkit. There are also areas in business and management research which to date seem to be mostly oblivious about the endogeneity issue. We highlight such an area, which studies the question of whether firms that are cross-listed on a foreign stock exchange are charged premium fees by their auditors. When the same methodology (pooled ordinary least squares) as in the existing literature is used, the existence of an audit fee premium for cross-listed firms seems to be confirmed. However, once methodologies are used which adjust for the various types of endogeneity (i.e. omitted variable bias, simultaneous and dynamic endogeneity) there is no longer support for the existence of such a generalized premium. Hence, not only do we illustrate that failure to adjust for endogeneity has severe consequences such as drawing the wrong inferences, but we also review various ways to control for the different types of endogeneity.

Private Equity Takeovers and Employment in the UK: Some Empirical Evidence

This study investigates the employment consequences of private equity acquisitions, in particular institutional buy-outs (IBOs), in the UK. It involves a pre- and post-acquisition analysis of employment and performance characteristics for a sample of acquired firms and a matched sample of non-acquired firms. The study finds a significant decrease in employment in acquired firms in the year immediately after the completion of the IBO compared to the non-acquired firms. Further analysis fails to identify any parallel or subsequent increase in firm productivity or profitability. This evidence suggests that the observed downsizing has not been effective either in disciplining staff or imparting a clearer focus to activities.

Internal and External Governance Mechanisms: evidence from the UK insurance industry

This paper examines the relationship between internal and external governance mechanisms employed by UK insurance companies. The different external control mechanisms available to owners in mutual and proprietary companies suggests that different internal governance mechanisms may be employed to monitor managers. Data for the study has been obtained from a detailed questionnaire survey of UK insurance companies. We find a higher proportion of non-executive directors and a greater likelihood of separating the roles of company chairman and CEO in insurance companies compared to similar studies of UK quoted companies. Even though the proportion of non-executive directors does not differ significantly between mutual and proprietary insurers, the proportion of non-executives who are former executives is greater in the case of proprietary companies. This suggests that mutual companies are more likely to employ non-executives for monitoring while proprietary companies place more importance on retaining the business expertise of former executives. We find that UK insurance companies have utilised remuneration and audit committees since the mid 1980s. We also find that remuneration committees in mutual companies possess a greater proportion of non-executive directors than remuneration committees in proprietary companies.