Ownership Structure, Board Composition and Non-Hostile Take-Overs in the UK : An Empirical Analysis

This paper analyses the board composition and ownership structures of a sample of companies that have been acquired by friendly take-over and those of a matching control sample that have not. We find significant governance differences between the friendly take-over targets and the control sample. Firms with the following characteristics were more likely to be acquired in a friendly take-over: they had the same person acting as CEO and chair, a higher proportion of non-executive directors, (as well as more independent, and recently appointed, non-executive directors), larger institutional shareholdings, higher executive director shareholdings and, more specifically, higher CEO shareholdings. These results are consistent with two agency-derived hypotheses, financial incentives and effective monitoring. We also find that targets exhibit lower growth potential but do not have worse accounting performance