Corporate Governance and M&A in the Banking Industry/LE GOUVERNEMENT DE CORPORATION ET LE M&A DANS L'INDUSTRIE DE LA BANQUE

By Limeng, Song | Canadian Social Science, March 1, 2007 | Go to article overview

Corporate Governance and M&A in the Banking Industry/LE GOUVERNEMENT DE CORPORATION ET LE M&A DANS L'INDUSTRIE DE LA BANQUE


Limeng, Song, Canadian Social Science


Abstract:

Financial economists have long recognized that the widespread separation of ownership and control in large corporations creates the potential for costly agency conflicts. This paper exploits the banking industry's recent M&As to explore what corporate governance characteristics are associated with managers acting in shareholders' best interests. Using the sample of publicly traded banks at year-end 2000 in different countries and a variety of empirical methods, in contrast to existing research on industrial firms, we examine the relation between corporate governance, particularly board ownership, and M&A in the banking industry between 2001 and 2003. We find that board structure does not help determine which sample banks sell. Neither the fraction of outsiders on a bank's board nor having an outside-dominated board differentiates the target banks in our sample. Instead, outside directors/shareholders and blockholders appear to be primarily responsible for encouraging bank managers to accept an attractive merger offer. We also find a greater frequency of outside blockholders in the banks that become targets, suggesting that large non-director shareholders can also encourage banks to act in shareholders' best interests.

Key Words: Corporate governance, M&A

Résumé : Les économistes financiers ont longtemps identifié que la séparation répandue de la propriété et de la commande à de grandes sociétés crée le potentiel pour des conflits coûteux d'agence. Cet article exploite le M&A récent du secteur bancaire pour explorer quelles caractéristiques de gouvernement de corporation sont associées aux directeurs pour réaliser les meilleurs intérêts des actionnaires. En utilisant l'échantillon de banques publiquement commercées à la fin d'année 2000 dans les pays différents et une variété de méthodes empiriques, contrairement à la recherche existante sur les sociétés industrielles, nous examinons la relation entre le gouvernement de corporation, en particulier la propriété de conseil, et le M&A dans le secteur bancaire entre 2001 et 2003. Nous constatons que la structure de conseil n'aide pas à déterminer en quelle mode les banques se vendent. Ni la fraction des étrangers sur le conseil d'une banque ni avoir un conseil extérieur-dominé ne différencient les banques de cible dans notre échantillon. Au lieu de cela, les directeurs/actionnaires et les blockholders extérieurs semblent être principalement responsables d'encourager des directeurs d'agence de banque à accepter une offre attrayante de fusion. Nous trouvons également une plus grande fréquence des blockholders extérieurs aux banques qui deviennent des cibles, proposant que les grands actionnaires de non-directeur puissent également encourager des banques à réaliser les meilleurs intérêts des actionnaires.

Mots-clés : Gouvernement de corporation, M&A

1. INTRODUCTION

Financial economists have long recognized that the widespread separation of ownership and control in large corporations creates the potential for costly agency conflicts. Dispersed shareholders' limited incentive to monitor the behavior and performance of the agents hired to run their firm can give managers substantial freedom to pursue their own interests at the expense of shareholder wealth. Absent mechanisms to control managerial behavior, usually called "corporate governance structures", wealth maximization will not exclusively motivate corporate decision-making. The banking industry's ongoing consolidation offers an excellent experimental setting for examining board effectiveness.

This paper exploits the banking industry's recent M&As to explore what corporate governance characteristics are associated with managers acting in shareholders' best interests. Banks provide a useful experiment because the burst of recent merger activity in this historically fragmented industry allows us to study a reasonably large sample of very homogeneous firms. …

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