Director networks and takeovers

• Published in: Journal of corporate finance (Amsterdam, Netherlands) Netherlands), 2014-10, Vol.28, p.218-234
• Main Authors: Renneboog, Luc, Zhao, Yang
• Format: Article
• Language: English
• Subjects: Acquisitions & mergers; Bidders; Bids; Boards of directors; Centrality; Connections; Director networks; Mergers and acquisitions; Rates of return; Social networks; Studies; Target company
• ISSN: 0929-1199; 1872-6313
• DOI: 10.1016/j.jcorpfin.2013.11.012

We study the impact of corporate networks on the takeover process. We find that better connected companies are more active bidders. When a bidder and a target have one or more directors in common, the probability that the takeover transaction will be successfully completed augments, and the duration of the negotiations is shorter. Connected targets more frequently accept offers that involve equity. Directors of the target firm (who are not interlocked) have a better chance to be invited to the board of the combined firm in connected M&As. While connections have a clear impact on the takeover strategy and process, we do not find evidence that the market acknowledges connections between bidders and targets as the announcement returns are not statistically different from those bidders and targets which are ex ante not connected. •Firms with one or more common directors have a higher probability to merge.•Firms with higher centrality measures are more active acquirers.•Negotiations between connected firms are shorter and more often successfully completed.•Connected bidders more frequently make equity offers.•The market does not recognize the impact of connections on the takeover process.