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Applied Economics, 1997, 29, 1465Ð 1475
Corporate governance, performance
and take-overs: an empirical analysis
of UK mergers
C H AR L I E W E I R
Aberdeen Business School, T he Robert Gordon University, Hilton Place,
Aberdeen AB9 1FP, Scotland
This paper analyses the relationship between the probability of being acquired, ® rm
performance and governance structures. The acquired ® rms were all fully quoted on
the London Stock Exchange and the acquisitions took place between 1990 and 1993.
They were matched by a sample of non-acquired quoted companies. The sample was
also analysed in terms of hostile and non-hostile acquisitions. It was found that the
key governance characteristics which di erentiated between acquired and nonacquired corporations related to the proportion of non-executive directors on the
board and to whether or not the roles of chief executive o cer and chairman were
combined. It was also found that acquired ® rms were poor performers, which suggests
that the internal governance structures had been ine ective. These results applied to
hostile and non-hostile targets. The ® ndings support the view that hostile acquisitions
are disciplinary but cast doubt on the claim that non-hostile acquisitions are purely
synergistic. The results also support the view that certain governance characteristics
are e ective substitutes for the take-over mechanism as a means of minimizing
discretionary behaviour.
I. INTRODUCTION
Agency problems occur in public companies because the
decision control and decision management functions are
separated from risk bearing. Decision-making authority is
delegated from the principal to the agent and if the objectives of the two groups di er, agency costs will be incurred.
However, agency theory argues that the monitoring mechanisms available within public companies ensure that shareholder rather than managerial interests prevail (Jensen and
Meckling, 1976, and Fama and Jensen, 1983). They argue...