An International Meeting of the American Accounting Association American Accounting Association 2006 Annual Meeting August 6–9, 2006 Washington, D.C.

Shail Pandit
Tulane University

Abstract: The last wave of M&As resulted in large scale value destruction. This study examines who is responsible for allowing bad acquisitions to be made. Using a sample of 349 acquisitions during 1993-2001 that have the same consideration, tax status and accounting treatment, the announcement returns of acquiring firms are found to be negatively associated with weak internal governance structures. A larger proportion of debt and stock ownership by trust funds are positively associated with the announcement returns. Examining acquiring firms’ long run abnormal returns and operating performance indicates that the presence of external monitors continues to be associated with more favorable post-merger performance, whereas the role of the board appears to diminish. Overall, the results indicate that active boards, stronger internal governance structures and the presence of external watchdogs are associated with value-enhancing acquisitions.

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