Analyzing M&A: The Effects of Board Connections

This paper analyzes the relationship between merger and acquisition outcomes and board connectedness as well as cross-sectional variation of intangible measures and deal size metrics. Two types of board connections were studied (1) first degree connections where there was a common person on the board of both the acquirer and target and (2) second degree connections where an acquirer director and a target director were jointly on the board of a common third company. The papers main findings are (1) the relationship between acquirer returns around the deal announcement and first degree board connections is significantly lower for larger deals, (2) the relationship between target returns and first degree connections is significantly lower when the target has higher intangible assets, (3) the relationship between a value weighted portfolio and second degree connections is significantly lower when the target has higher research and development and significantly higher for larger deals relative to acquirers size, and (4) the relationship between takeover premium and second degree connections is significantly lower when the target has higher research and development.