Is There a ‘Dark Side’ to Monitoring? Board and Shareholder Monitoring Effects on M&A Performance Extremeness

We investigate the effects of monitoring by boards of directors and institutional shareholders on merger and acquisition (M&A) performance extremeness using a sample of M&A deals from 1997-2006. Both governance research and legal reforms generally have espoused a ‘raise all boats' view of monitoring. We instead investigate whether monitoring may serve as a double-edged sword that limits CEO discretion to undertake both value-destroying M&A deals and value-creating ones. Our findings indicate that the relationship between monitoring and M&A performance is more complex than previously believed. Rather than ‘raising all boats' in a shift towards better M&A outcomes, monitoring instead is associated with lower M&A losses, but also with lower M&A gains