ANALYSIS OF THE DRIVERS OF BOARD RETENTION IN M&A Word count: <19.422> Michiel Vindevogel Student number: 000150488224 Floris Vlaeminck Student number: 000150246128 Supervisor: Prof. dr. ir. Regine Slagmulder Master’s Dissertation submitted to obtain the degree of: Master in Business Economics: Corporate Finance Master in Business Economics: Corporate Finance Academic year: 2018-2019 Deze pagina is niet beschikbaar omdat ze persoonsgegevens bevat. Universiteitsbibliotheek Gent, 2021. This page is not available because it contains personal information. Ghent Universit , Librar , 2021. Preface First of all, we would like to thank our thesis supervisor prof. dr. ir. Slagmulder for being our guide in the process of writing our master dissertation. The high-quality feedback we received as well as the responsiveness has helped us in delivering our thesis. Secondly, our gratitude goes to Thomas Matthys, postdoctoral researcher at Vlerick Business School, for his helpful suggestions concerning the statistical part of our thesis. Through his input, we were able to verify the correctness of the executed statistical tests. Last, but not least, we want to thank our family and friends for their time, patience and support throughout the whole process. Thanks to their help in reading and proofreading our thesis, we were able to improve both the language and content of this work. I II Table of contents Preface .................................................................................................................................... I List of abbreviations ............................................................................................................... V List of tables .......................................................................................................................... VI 1 Introduction ..................................................................................................................... 1 2 Mergers & Acquisitions .................................................................................................... 3 2.1 Defining a merger .................................................................................................................. 3 2.2 Defining an acquisition .......................................................................................................... 3 2.3 Reasons for M&A .................................................................................................................. 4 2.3.1 Synergy .................................................................................................................................................... 4 2.3.2 Market Power ......................................................................................................................................... 4 2.3.3 Diversification ......................................................................................................................................... 5 2.3.4 Taxation .................................................................................................................................................. 5 2.3.5 Cross-selling ............................................................................................................................................ 5 2.3.6 Expansion of Talent ................................................................................................................................. 5 2.3.7 Eat or be eaten ........................................................................................................................................ 5 2.4 Types of M&A ....................................................................................................................... 6 2.4.1 Horizontal M&A ...................................................................................................................................... 6 2.4.2 Vertical M&A ........................................................................................................................................... 6 2.4.3 Concentric M&A ...................................................................................................................................... 6 2.4.4 Conglomerate M&A ................................................................................................................................ 7 2.4.5 Hostile M&A ............................................................................................................................................ 7 2.5 Effectiveness of M&A .......................................................................................................... 10 2.5.1 Implementation Strategy ...................................................................................................................... 11 2.5.2 Related or Unrelated Business .............................................................................................................. 12 2.5.3 Friendly or Hostile Acquisitions ............................................................................................................. 12 2.5.4 Culture and M&A Performance ............................................................................................................ 13 3 Board of Directors .......................................................................................................... 14 3.1 Structure of the board ......................................................................................................... 14 3.1.1 One-tier board ...................................................................................................................................... 14 3.1.2 Two-tier board ...................................................................................................................................... 15 3.2 Role of the Board ................................................................................................................ 15 3.2.1 Monitoring role ..................................................................................................................................... 16 3.2.2 Strategic role ......................................................................................................................................... 17 3.3 Board composition .............................................................................................................. 19 3.3.1 Size ........................................................................................................................................................ 19 3.3.2 Insider/outsider .................................................................................................................................... 20 3.3.3 CEO duality ............................................................................................................................................ 21 3.3.4 Board reputation ................................................................................................................................... 23 3.3.5 Stock ownership .................................................................................................................................... 23 3.3.6 Board diversity ...................................................................................................................................... 24 3.4 Public vs private boards ....................................................................................................... 25 3.4.1 Public and private firms in M&A ........................................................................................................... 25 3.4.2 Directors in a public vs private board ................................................................................................... 26 4 Board within M&A ......................................................................................................... 27 III 4.1 Effective board oversight in the M&A process ..................................................................... 28 4.2 Roles a board can take in M&A ............................................................................................ 29 4.3 Target firm in M&A ............................................................................................................. 30 4.4 Board connections in M&A .................................................................................................. 31 5 Empirical research .......................................................................................................... 32 5.1 Data .................................................................................................................................... 32 5.1.1 Descriptive statistics data sample ......................................................................................................... 36 5.2 Hypotheses and results ....................................................................................................... 44 6 Conclusion ...................................................................................................................... 52 7 Bibliography .................................................................................................................. VII Appendix 1: List of Variables ............................................................................................... XIV IV List of abbreviations BLR: Binary Logistic Regression CEO: Chief Executive Officer M&A: Mergers and Acquisitions