Corporate Governance and Acquirer Returns





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    • Ronald W. Masulis is from the Owen Graduate School of Management, Vanderbilt University; Cong Wang is from the Faculty of Business Administration, Chinese University of Hong Kong; and Fei Xie is from the School of Management, George Mason University. We thank an associate editor, an anonymous referee, George Benston, Margaret Blair, Paul Chaney, Bill Christie, Harry DeAngelo, Mara Faccio, Amar Gande, Sreeni Kamma, Veronika Krepely, Craig Lewis, Xi Li, Micah Officer, Hans Stoll, René Stulz, Randall Thomas, Robert Thompson, and seminar participants at the Accounting and Finance Research Camp at the Australian Graduate School of Management, the American Finance Association annual meetings in Boston, the Conference on International Markets and Corporate Governance at Georgetown University Law School, the JFI/CRES Corporate Governance Conference at Washington University, Chinese University of Hong Kong, Emory University, Hong Kong University of Science and Technology, University of New South Wales, and Vanderbilt University for helpful comments, and Martijn Cremers and Vinay Nair for providing institutional ownership data. Fei Xie also thanks Haibo Tang from Yale University for his assistance in conducting early analyses on this topic.


We examine whether corporate governance mechanisms, especially the market for corporate control, affect the profitability of firm acquisitions. We find that acquirers with more antitakeover provisions experience significantly lower announcement-period abnormal stock returns. This supports the hypothesis that managers at firms protected by more antitakeover provisions are less subject to the disciplinary power of the market for corporate control and thus are more likely to indulge in empire-building acquisitions that destroy shareholder value. We also find that acquirers operating in more competitive industries or separating the positions of CEO and chairman of the board experience higher abnormal announcement returns.