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Is there a “Dark Side” to Monitoring? B oard and Shareholder Monitoring Effects on M&A Performance Extremeness
Author(s) -
Goranova Maria L.,
Priem Richard L.,
Ndofor Hermann A.,
Trahms Cheryl A.
Publication year - 2017
Publication title -
strategic management journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 11.035
H-Index - 286
eISSN - 1097-0266
pISSN - 0143-2095
DOI - 10.1002/smj.2648
Subject(s) - shareholder , discretion , corporate governance , accounting , value (mathematics) , business , shareholder value , economics , finance , law , political science , computer science , machine learning
Research summary: W e 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 to 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 . Managerial summary: M ergers and acquisitions ( M&A s) are a quintessential corporate activity. There were $3.8 trillion worth of M&A deals in 2015, despite scholars and practitioners reporting that M&A s often perform poorly. We question the widespread belief that more vigilant monitoring by boards of directors and large shareholders will raise M&A performance, overall. Put differently, does monitoring constrain CEO s' discretion to pursue bad deals, while simultaneously encouraging them to pursue good ones? We find that monitoring limits both large M&A losses and large M&A gains. Contrary to widely held beliefs, our results indicate that constraining executives' ability to pursue value‐destroying M&A deals does not simultaneously encourage or enable CEO s to pursue value‐creating deals . Copyright © 2017 John Wiley & Sons, Ltd.