Acquisitions and firm characteristics: the importance of internal monitoring mechanisms

An important characteristic of public limited liability companies is that those which provide a company’s finance are not involved in the running of the business. It is therefore in the interests of the owners (shareholders) to ensure that the management team is implementing policies consistent with shareholder objectives. If the controls imposed by the shareholders are ineffective, the firm’s performance will suffer and it will become a takeover target. Compares the characteristics of a sample of acquired and non‐acquired firms. Finds evidence that acquired firms are less profitable than non‐acquired firms. Results show that the board structures of acquired firms make managerial discretion more likely. Finds that acquired firms are more likely to have a dual chief executive officer and chairman, have a lower proportion of non‐executive directors on the board and have non‐executive directors who are perceived to be less effective.