Browsing by Author "Onkalo, Otro"

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The Effect of the Overallotment Option on Post-Issue Share Price Return and Variance in Overpriced IPOs
(2017) Onkalo, Otro
School of Business | Bachelor's thesis
Social links in the boardroom: Effect on performance in mergers and acquisitions
(2020) Onkalo, Otro
School of Business | Master's thesis
This thesis studies the impact of social ties between independent and executive directors on companies’ acquisition performance. As company outsiders, independent directors are traditionally argued to improve objective decision-making and to enhance corporate governance by mitigating conflicts of interests between the executives and shareholders. Despite the listing requirements of the main stock exchanges in the United States set strict requirements for director independence, social ties fall outside the disqualifications. This can lead to a situation where board of directors is independent from the regulatory viewpoint, but simultaneously consists of directors who share formal and informal social ties to CEO and other executives. Such social relationships are in the grey area of corporate governance because directors’ decision-making and objectivity can be harmfully affected, causing for example approvals of value-destroying acquisition projects. On the other hand, social ties can also streamline cooperation between management team and board of directors, resulting in better acquisition performance. Prior common work experience between independent and executive directors in some other organization’s board of directors than where they are engaging into an acquisition is used as a proxy for a social tie in the study. The sample consists of 2,477 acquisitions of listed U.S. companies between 2000 and 2006. Methods include pooled ordinary least squares regressions with robustness checks, difference in differences estimations and two-stage least squares regressions. Difference in differences and two-stage least squares utilize the passage of the Sarbanes-Oxley Act of 2002 in the U.S. which together with the subsequent changes to the listing requirements of the New York Stock Exchange and NASDAQ required listed companies to have a majority of independent directors, of who socially dependent directors also are, on their boards. The effects of social relationships are also tested in different company characteristics, namely complex and simple firms. A three-day cumulative abnormal return around deal announcement day is used as dependent variable. Several acquirer and transaction characteristics are used as control variables, also including year- and industry fixed effects. The study finds that socially affected boards do not generally have a statistically significant effect on acquirer performance. However, social relationships weaken the M&A returns in complex companies. This effect is unique to boards with social ties as the same result was not reached with robustness checks where variables depicting social ties were replaced by board independence indicators. Other findings are that regulatory board independence and different socially affected director types (CEO/CFO/COO) do not have a statistically significant impact on acquirer performance.