Agency Costs of Board Connections and Director Retention: Evidence from UK Takeovers

Hao Li, Edward Jones, Pierre de Gioia-Carabellese

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The purpose of this paper is to investigate whether ex ante board connections and director retention result in agency costs to target company shareholders in the form of reduced payment in mergers and acquisitions transaction.

The authors employ detailed data of ex ante board connection and director retention in the mergers and acquisition in the UK from 1999 to 2015. Ex ante board connections are measured as proportion of target and acquirer companies’ directors worked on the same board at any time prior to the takeover, while director retention is measured as proportion of target companies’ directors remains on board after the takeover is completed. For mergers and acquisition payment characteristics, the authors examine takeover premium, cash payment percentage and offer price adjustment.

The authors find that ex ante board connections and director retention lead to reduced offer prices and lower proportions of cash payment. Notably, when there is no connection and target directors are not retained, the authors find that the bidding companies increase their final offer by £14m more than in other scenarios. The authors also document strong evidence that ex anteboard connections lead to a higher probability of director retention.

The paper highlights that ex ante board connections and director retention will lead to a significant cost on target company shareholders. The authors recommend that a more detailed set of information on ex ante board connections and intended target board retention should be disclosed.
Original languageEnglish
JournalInternational Journal of Managerial Finance
Early online date18 Jun 2019
Publication statusE-pub ahead of print - 18 Jun 2019



  • Agency costs
  • Board connections
  • Corporate governance
  • Director retention
  • Mergers and acquisitions

ASJC Scopus subject areas

  • Business, Management and Accounting (miscellaneous)
  • Finance

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