Takeover Immunity, Takeovers, and the Market for Nonexecutive Directors

We develop and test two competing hypotheses that relate the market for nonexecutive directors to the level of external monitoring mechanism of the firms they serve. The Reward for Discretion Hypothesis posits that directors are valued more when they display discretion concerning their choice of ant...

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Bibliographic Details
Published in:	Financial management 2010-03, Vol.39 (1), p.83-127
Main Authors:	Ashraf, Rasha, Chakrabarti, Rajesh, Fu, Richard, Jayaraman, Narayanan
Format:	Article
Language:	eng
Subjects:	Acquisitions and mergers Anti takeover strategy Business structures Chief executive officers Corporate anti-takeover measures Corporate governance Directors Economic aspects Employment Evaluation Financial economics Human resources Hypotheses Immunity Job change Labor markets Labour market Management Market mechanisms Outside directors P values Personnel management Risk aversion Securities Senior management Studies Take-overs Zero
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Summary:	We develop and test two competing hypotheses that relate the market for nonexecutive directors to the level of external monitoring mechanism of the firms they serve. The Reward for Discretion Hypothesis posits that directors are valued more when they display discretion concerning their choice of antitakeover provision (ATP) levels rather than follow a rule. Alternatively, the CEO Risk Aversion Hypothesis implies that CEOs seek directors with inclination for uniform and high ATP levels. We examine how changes in ATP levels and approval of value creating/destroying acquisitions affect the careers of nonexecutive directors. Our results, based on data from about 3,000 listed US companies during 1994-2003, support the Reward for Discretion Hypothesis.
ISSN:	0046-3892 1755-053X