Corporate governance “ bundles ” and firm acquisitiveness

Research Question/Issue: We explore how the interrelations of governance mechanisms ( “ bundles ” ) influence a firm's propensity for corporate acquisitions. Focusing on four key internal and external mechanisms, namely, board of directors monitoring, CEO pay incentives, takeover market discipline, and institutional investor monitoring, we use a sample of 1171 completed M&A deals by 799 U.S. firms during the period 1998 – 2015 to test the Substitution versus Complementarity Hypotheses . Research Findings/Insights: The findings provide, in the main, support for both the Substitution and the Complementarity Hypotheses , with several incentives alignment, internal and external monitoring mechanisms acting as substitutes and complements of each other toward firm acquisitiveness. Theoretical/Academic Implications: Our results challenge the notion that corporate governance mechanisms purely function as independent factors and contribute to the configurational perspective of corporate governance. They offer new evidence that combinations or “ bundles ” of firm-level governance mechanisms can allow for differing degrees of firm acquisitiveness. Practitioner/Policy Implications: Different governance “ bundles ” will have different implications for major strategic decisions such as corporate acquisitions. Firms seek-ing to control or increase acquisition propensity can thus consider “ equifinal ” governance configurations, whereby alternative combinations of governance mechanisms can lead to comparable, desired outcomes.


| INTRODUCTION
Mergers and Acquisitions 1 (hereafter referred to as M&A) are among the most significant corporate investments employed by firms in the pursuit of growth and shareholder wealth creation. Although there is a significant body of research across academic disciplines on the determinants of corporate acquisitions, this research has been rather disparate in identifying the relative importance of different drivers and how multiple drivers may simultaneously work in influencing firm acquisitiveness (Haleblian et al., 2009;Laamanen, 2007). Accordingly, Haleblian et al. (2009) emphasize the need for additional evidence on the influence of governance mechanisms, such as board structure, executive compensation, and blockholder ownership on firm acquisition behavior.
Corporate acquisitions represent major and discrete strategic events, but they have also been argued to exacerbate the inherent conflicts of interest between shareholders and managers in large public firms (Jensen, 1986;Masulis et al., 2007;Morck et al., 1990). M&A, for instance, can be the result of managerial self-interest, inconsistent with shareholder value maximization, such as empire building (e.g., Andrade et al., 2001;Jensen, 1986) and employment risk reduction (Amihud & Lev, 1981). Acquisition decisions can be the source of a wide divergence of interests between shareholders and managers and, therefore, have been frequently investigated using the agency theory lens, which is also very popular in governance research (Jensen & Meckling, 1976). A number of recent studies in the empirical literature further supports the notion that corporate acquisitiveness ranks highly in both finance and management research agendas in relation to behavioral, decision-making, gender-related, and personality dimensions (Huang & Kisgen, 2013;Jenter & Lewellen, 2015;Shi et al., 2017;Yim, 2013). Irrespective of their short-and long-term outcomes, acquisition decisions represent a conduit for managerial risk-taking, opportunism, and agency issues. Thus, the M&A framework provides a suitable setting to explore the role of governance in influencing corporate investment policy.
The relationship between corporate governance mechanisms and firm performance has long been at the center of governance scholarship. However, the evidence from this prolific research has yielded mixed results. For example, studies of the effects of board characteristics (e.g., board independence, leadership, and structure) and ownership structure on corporate financial performance have failed to provide consistent evidence of significant and systematic effects (e.g., Dalton et al., 1998;Dalton et al., 2007;Deutsch, 2005). The fact that the extant literature has produced mixed and inconsistent results is due, at least in part, to the examination of governance mechanisms in isolation from each other, without considering their joint effects (Desender et al., 2016;García-Castro et al., 2013;Oh et al., 2018).
To overcome this shortcoming, a more holistic approach to corporate governance has been proposed, by considering a configurational perspective of governance mechanisms. Under this configurational perspective, substitutive and/or complementary effects between governance mechanisms result in the creation of multiple combinations or "bundles" of such mechanisms (Rediker & Seth, 1995) that work effectively together toward specific firm outcomes (Aguilera et al., 2012;Aguilera et al., 2015;Cuomo et al., 2016). According to Rediker and Seth (1995, p. 87), "firm performance depends on the efficiency of a bundle of governance mechanisms (authors' italics)," which implies that different mechanisms can interact with each other in a complex way to influence organizational outcomes. Essentially, it is not unreasonable to expect that governance mechanisms will operate jointly, and therefore, organizational outcomes will be dependent on the effectiveness of some bundles of governance mechanisms (Aguilera et al., 2012). Governance practices share a common goal and collectively constitute the organizational context for the governance environments, but they do have different characteristics, roles, and functions. Thus, to understand how organizational outcomes are affected by multiple governance mechanisms, the attention should be on their interactive influence and how they might have different effects depending on how they are combined (Oh et al., 2018).
To date, there has been limited empirical research into this configurational perspective of corporate governance. A growing number of studies have, however, confirmed the validity of the bundle approach. For example, Desender et al. (2016) show that, in order to protect their interests, shareholder-oriented foreign owners introduce their own practices in the existing bundle of governance mechanisms normally found in a stakeholder context withing a certain country.
Furthermore, using a panel sample of U.S. firms for 6 years, Oh et al. (2018) find that multiple governance mechanisms mainly work as substitutes in influencing corporate social responsibility (CSR) and suggest that different combinations of governance mechanisms can achieve similar levels of CSR. Additionally, Florackis et al. (2015) employ a semi-parametric approach and find that ownership and dividends act as substitute mechanisms in reducing agency costs of free-cash-flow, but only in the presence of high debt monitoring. Finally, employing a fuzzy set/qualitative comparative approach, García-Castro et al. (2013) reveal that in different national contexts, the bundle of governance practices in a firm entails relationships that are not necessarily monotonic and cumulative; they, thus, conclude that there are multiple bundles that can lead to superior organizational performance.
Drawing from this theoretical approach, the main objective of this study is, consequently, to address the aforementioned gaps both in the M&A and corporate governance literatures and explore the interrelations of certain firm-specific governance mechanisms with respect to influencing a firm's propensity to undertake corporate acquisitions.
By deploying the "complement versus substitute framework" (Oh et al., 2018(Oh et al., , p. 2717, we apply the concept of marginal effect to gauge if multiple governance mechanisms operate as complements or substitutes in the M&A setting, essentially whether they work synergistically or competitively. Given the multifaceted nature of corporate governance, this study focusses on four key governance mechanisms, namely board monitoring, CEO pay incentives, external market discipline, and institutional investor monitoring. M&A are complex corporate investments with highly uncertain outcomes and can have major valuation effects for the acquirer's shareholders. Thus, as acquisition decisions require board approval, studying the impact of board monitoring characteristics on a firm's acquisition propensity is particularly salient. In addition, given that the CEO of a firm typically initiates an M&A deal, it is interesting to examine the role of CEO pay incentives in influencing acquisition decisions as these are important determinants in the alignment of governance mechanisms. Moreover, given the increasing importance of institutional investor ownership in U.S. public firms (Derrien et al., 2013), these shareholders have a vested interest in influencing acquisition decisions and represent another monitoring, yet external governance mechanism.
Using a sample of U.S. firm acquisitions for the period from 1998 to 2015 and drawing from the literature on the configurational perspective in corporate governance, we empirically test the Substitution versus Complementarity Hypotheses in the context of M&A decisions (e.g., Vives, 1990). As mentioned earlier, the substitutive assumption (e.g., Oh et al., 2018;Rediker & Seth, 1995;Zajac & Westphal, 1994) suggests that one governance mechanism may weaken the marginal effects of another mechanism on firm outcomes. This, in turn, implies that simultaneously deploying multiple governance mechanisms may not always lead to optimal outcomes, as the associated costs of additional mechanisms may exceed their benefits. On the contrary, the complementarity view (e.g., Cremers & Nair, 2005;Misangyi & Acharya, 2014;Schepker & Oh, 2013) assumes that two (or more) governance mechanisms work in a synergistic fashion and that one mechanism could increase the marginal effects of another one. If this is the case, two (or more) governance mechanisms need to be simultaneously deployed to obtain optimal outcomes.
Our empirical results provide support for both the Substitution and Complementarity Hypotheses. We find that incentive alignment and external market discipline mechanisms can act as substitutes and complements of each other in influencing the likelihood of a firm to undertake an acquisition. We also detect complementary effects in the case of board and institutional investor monitoring and substitutive effects of institutional investor monitoring and external market discipline mechanisms toward acquisition propensity. As such, we make several contributions to both the M&A and corporate governance literatures. First, taking into account the under-examined interactive effects between different governance mechanisms (Cuomo et al., 2016), our results add to the existing M&A literature on the determinants of acquisition activity (Aktas et al., 2016) by identifying a set of predictor variables in the form of firm-level governance configurations. Furthermore, this study contributes to the configurational perspective of corporate governance research (Aguilera et al., 2008;Aguilera et al., 2012;Rediker & Seth, 1995;Ward et al., 2009), suggesting that degrees of firm acquisitiveness can be achieved through different combinations or "bundles" of firm-level governance mechanisms. In accordance with the idea of "equifinality" (Gresov & Drazin, 1997;Rediker & Seth, 1995), firms can be flexible in designing their bundle of governance practices so as to achieve predetermined outcomes and, in this case, the desired levels of acquisition propensity.

| THEORETICAL BACKGROUND
Agency theory-based research generally assumes that firm-level governance mechanisms operate independently and, therefore, has predominantly investigated them separately. However, as mentioned earlier, this line of research has not been able to establish a definitive link between individual governance mechanisms and firm performance (e.g., Dalton et al., 1998;Dalton et al., 2007;Deutsch, 2005).
One possible explanation for these contrasting findings is that, since various governance mechanisms coexist within firms, more attention should be paid toward exploring the interconnections between these mechanisms, which essentially means treating them as a governance "bundle" (Aguilera et al., 2008;Aguilera et al., 2012;Rediker & Seth, 1995;Ward et al., 2009).

| The interdependence of governance mechanisms
A growing body within the governance literature has adopted a configurational perspective, which posits that firm performance depends on the effectiveness of the "bundle" of governance arrangements, rather than the effectiveness of any single governance mechanism (Aguilera et al., 2008;Aguilera et al., 2012;Rediker & Seth, 1995;Ward et al., 2009). The configurational approach in corporate governance assumes that in order to achieve a desired firm outcome, the interdependencies of governance mechanisms should be considered (Oh et al., 2018). This suggests the existence of multiple combinations or "bundles" of governance mechanisms and therefore challenges universalistic policy prescriptions (Aguilera et al., 2008;Cuomo et al., 2016). Additionally, it supports the notion of "equifinality," whereby alternative combinations of governance mechanisms can lead to similar firm outcomes (Gresov & Drazin, 1997;Rediker & Seth, 1995). In these studies focusing on the interdependence of governance mechanisms, two alternative hypotheses have been developed, namely, the Substitution and Complementarity Hypotheses.

| The substitution hypothesis
First, the Substitution Hypothesis predicts that governance mechanisms can substitute one another and, in doing so, effectively mitigate agency costs, including considering the costly implementation of these mechanisms in a firm (e.g., Agrawal & Knoeber, 1996). This assumption has already received robust empirical support. For example, several studies provide evidence of substitutive effects between monitoring and incentive alignment mechanisms with respect to organizational outcomes such as firm value-as measured by Tobin's Q- (Kim & Lu, 2011;Randøy & Goel, 2003) and corporate social responsibility (Oh et al., 2018). In the same spirit, other studies find support for the substitutive perspective between various monitoring governance mechanisms with regard to outcomes such as firm performance-again measured by Tobin's Q (Agrawal & Knoeber, 1996)-and the impact on shareholder wealth associated with the adoption of antitakeover provisions (Sundaramurthy et al., 1997).
In the context of this study, our assumption is that the costbenefit implication of having multiple governance mechanisms is a driver of firm acquisitiveness. The substitutive perspective implies that if certain governance mechanisms are sufficiently present, the costs of implementing additional mechanisms-either monitoring or incentive alignment-may exceed the benefits. Therefore, the joint presence of multiple governance mechanisms may not always be effective in achieving certain firm outcomes (i.e., acquisitions in our case).
Consequently, using the marginal effects concept-as employed in the field of economics (e.g., Vives, 1990)-we will observe the existence of substitutive effects between two governance mechanisms if one governance mechanism decreases the marginal effect of another mechanism on firm acquisitiveness. The substitutive perspective implies that if certain governance mechanisms are sufficiently present, the costs of implementing additional mechanisms-either monitoring or incentives alignment-may exceed the potential benefits. Consequently, the simultaneous existence of multiple governance mechanisms may not always be optimal in achieving certain firm outcomes, and so, the marginal effect of each mechanism will not be strengthened or will even be weakened.

| The complementarity hypothesis
Conversely, the Complementarity Hypothesis posits that the coexistence of multiple firm-level governance mechanisms is required in order to reduce a firm's agency costs, which implies synergistic effects among governance mechanisms. A recent stream of research confirms the presence of complementary effects between monitoring and incentives alignment governance mechanisms, for instance, with respect to reducing information asymmetry and mitigating agency costs (Rutherford et al., 2007), repealing poison pills (Schepker & Oh, 2013) and improving firm profitability in terms of ROA (Misangyi & Acharya, 2014). Other studies also offer evidence in favor of complementarities between various monitoring governance mechanisms. Cremers and Nair (2005), for example, find evidence that shareholder activism and the market for corporate control work together as complements toward increasing shareholder wealth in terms of long-term equity returns, where annualized abnormal returns between 10% and 15% are generated only in the presence of high public pension fund (blockholder) ownership. Offering further evidence of complementarity effects, Masulis et al. (2007) extend the work of Cremers and Nair (2005) by demonstrating that acquirers that face more pressure from the market from corporate control, operate in industries with higher competition and separate the positions of CEO and chairperson, engage in more profitable acquisitions in terms of higher abnormal announcement returns.
In the specific context of M&A, the complementarity perspective implies that the adoption of multiple governance mechanisms would have a greater impact on a firm's acquisition propensity than either governance mechanism in isolation. As suggested by Oh et al. (2018), complementarity, therefore, assumes that governance mechanisms work in a synergistic fashion and the adoption of certain combinations of governance mechanisms is required to maximize their impact on firm outcomes, such as firm acquisitiveness in our case. On the basis of the marginal effects concept, two governance mechanisms are complementary when the marginal effect of one increases the marginal effect of the other on firm acquisitiveness.

| Governance bundles and firm acquisitiveness
Traditional agency theory-based assumptions suggest that higher levels of equity-based compensation should create long-term incentives for managers toward maximizing shareholder value (Eisenhardt, 1989;Fama & Jensen, 1983). As such, CEOs having equity compensation as a substantial part of their compensation package are more likely to engage in strategic investments such as M&A, which could benefit not only shareholder value in the long-term but also enhance their personal wealth through these investments. In other words, if the CEO believes that undertaking M&A pays off over the long run, firms will be more likely to increase their acquisitiveness.
Since monitoring governance mechanisms, such as the board of directors or the presence of institutional investors, are employed in order to reduce managerial opportunism, acquisition decisions are expected to receive intensive scrutiny, given also their inherent complexity and the potential major long-term consequences on the shareholder wealth of the acquirer. For example, the board of directors, as the primary monitoring mechanism in a public firm, is involved in the approval (or rejection) of strategic initiatives proposed by the firm's management and is expected to constrain CEO discretion, particularly in cases where the proposed M&A may be driven by value-destroying motives, such as hubris (Roll, 1986), empire building (e.g., Andrade et al., 2001;Jensen, 1986), and employment risk reduction (Amihud & Lev, 1981). Likewise, large and concentrated institutional investors are expected to engage in active monitoring and scrutinize the acquisition decisions of their investee firms for shared gain. Therefore, monitoring governance mechanisms will be more likely to curb firm acquisition propensity.
With reference to the second governance mechanism, if the positive effect of CEO pay incentives (incentive alignment mechanism) on acquisition propensity becomes weaker (i.e., has a smaller marginal effect) in the presence of high levels of a monitoring governance mechanism, for example, in the form of a large or independent board of directors, then this would suggest that there is a substitutive effect between CEO pay incentives and board monitoring on firm acquisition propensity. In a similar vein, if the negative effect of a strong board of directors on acquisition propensity becomes weaker when there is a high level of large and concentrated institutional shareholders, then this would also suggest that these two monitoring mechanisms act as substitutes for each other in reducing firm acquisitiveness. In this case, additional monitoring by another monitoring mechanism would not significantly affect the firm's acquisition decision because monitoring by one mechanism would be sufficient. If, on the other hand, the negative effect of a strong board of directors increases in magnitude

| Independent variables
The main variables of interest are proxies for board monitoring, CEO pay incentives, institutional investor monitoring, and monitoring by the takeover market. First, board monitoring is proxied by three variables (previously discussed), which have been associated with the monitoring effectiveness of the board (e.g., Linck et al., 2008;Wintoki et al., 2012): board size, a refined measure of board independence (non-co-opted independence) and CEO/Chair duality. Board size equals the number of directors on the board.
Non-co-opted independence is measured as the fraction of directors who are independent and were appointed before the CEO assumed office, as in Coles et al. (2014). Non-co-opted independence has been shown to increase the monitoring effectiveness of the board with regard to certain CEO features (turnoverperformance sensitivity, total annual compensation, and payperformance sensitivity or delta) and firm decisions (capital expenditure) (Coles et al., 2014). CEO/Chair duality is a binary variable which is equal to one if the CEO serves also as the Chairman of the board.
Second, we employ CEO vega and delta as proxies for CEO pay incentives. These variables are estimated following the approximation method developed by Core and Guay (2002), which uses the Black and Scholes (1973)  Finally, we include a proxy for the external discipline imposed by the takeover market, namely, the entrenchment index (E-Index), proposed by Bebchuk et al. (2009). The E-Index is based on six antitakeover provisions (staggered boards, limits on amending the charter, limits on amending bylaws, supermajority requirements to approve a merger, poison pills, and golden parachutes) that limit shareholder rights and insulate managers from the pressure of the takeover market. The presence of anti-takeover provisions makes firms less vulnerable to takeovers and thus more likely to lead to managerial entrenchment and facilitate the display of opportunistic behavior by managers (Masulis et al., 2007). Each firm is assigned a score, from 0 to 6, based on the number of anti-takeover provisions that the firm has in the given year. The higher the E-Index value, the higher the probability of managerial entrenchment in the firm (Bebchuk et al., 2009). With respect to acquisition activity, Gompers et al. (2003) provide empirical evidence that firms with weaker shareholder rights or many anti-takeover provisions tend to be more acquisitive.

| Control variables
Following the extant literature, to control for other factors that potentially influence a firm's decision to undertake an acquisition, we include a variety of control variables in all model specifications. In particular, we include three sets of determinants focusing on firm, industry, and CEO-specific characteristics.
In terms of firm-level variables, we control for firm size. Large firms have been shown to undertake more acquisitions (e.g., Harford, 1999). Next, we control for book leverage, since excessive leverage may pose constraints on a firm's ability to acquire and thus may decrease a firm's likelihood of making an acquisition.
Uysal (2011) documents a negative and significant effect between overleverage and acquisition probability. Previous studies on acquisitiveness (e.g., Levi et al., 2010Levi et al., , 2014) also control for a firm's sales growth. We additional include Market-to-book ratio to account for the effect of growth opportunities and Cash flows as in Croci and Petmezas (2015). High levels of free cash flows enable firms to undertake investments, hence increasing acquisition propensity (Bauguess & Stegemoller, 2008). Furthermore, firms with excess cash reserves are more likely to carry out acquisitions (Jensen, 1986). To measure cash reserves, we include cash holdings. We also control for accounting performance using the firm's ROA (Sauerwald et al., 2016) and CAPEX (Bauguess & Stegemoller, 2008) as a proxy for the scope of managerial discretion in undertaking corporate investments. With regard to the industry characteristics which may have an impact on the acquisition likelihood, we add the M&A Liquidity Index, since there is evidence of a positive association between this variable and the likelihood of an acquisition (Uysal, 2011).
The last group of control variables refers to certain CEO characteristics which have been linked with acquisitiveness. We control for CEO tenure as a proxy for CEO power and entrenchment (Berger et al., 1997;Bertrand & Mullainathan, 2001), which may increase acquisition likelihood. Additionally, we include the age and gender of the CEO, two proxies of CEO risk aversion. Using a U.S. sample, Yim (2013) reports a negative relationship between CEO age and acquisition propensity, with younger CEOs pursuing more acquisitions. With respect to CEO gender, there is evidence that, due to female risk aversion and male overconfidence (Barber & Odean, 2001;Croson & Gneezy, 2009), female directors and executives undertake fewer acquisitions than their male counterparts (Huang & Kisgen, 2013;Levi et al., 2014). We also control for CEO overconfidence (Malmendier & Tate, 2008) under the assumption that overconfident CEOs will be more acquisitive, especially in firms with abundant cash reserves. Risk aversion and under-diversification are expected to induce CEOs to exercise their stock options early if the stock price is sufficiently high so as to "lock-in" a profit (Hall & Murphy, 2002). As in Croci and Petmezas (2015), we construct CEO overconfidence using the options-based measure developed by Campbell et al. (2011). As a final CEO characteristic, we control for CEO ownership although its effect on acquisition decisions is theoretically unclear. While incentives alignment mechanisms such as CEO equity ownership may encourage acquisitions with the objective of shareholder wealth creation, undiversified CEOs may forego risky but value-increasing projects such as acquisitions (Coles et al., 2006).
To alleviate potential endogeneity concerns, all explanatory variables are lagged by 1 year with regard to the dependent variable. All continuous variables are winsorized at the 1% level in both tails to mitigate the influence of outliers on our results.

| Methodology
We investigate the influences of the four key corporate governance mechanisms (i.e., board of directors' characteristics, CEO pay incentives, institutional ownership concentration and monitoring by the takeover market) in an exploratory way so as to identify which, if any, of these mechanisms act in a substitutive or complementary fashion with each other. We test the substitutive/complementary effects of these mechanisms on firm acquisitiveness by including in our specifications all pairwise two-way interaction terms by introducing product terms and examining the marginal effect of one mechanism on acquisitiveness depending on the levels of the other for the significant interaction terms. For the purposes of this study, two governance mechanisms interact as complements (substitutes) if the marginal effect of one governance mechanism on firm acquisitiveness increases (decreases) as the other governance mechanism increases (Poppo & Zenger, 2002;Siggelkow, 2002). The aforementioned approach has been employed, for instance, by studies exploring interactive relationships between governance mechanisms in promoting a firm's corporate social responsibility (Oh et al., 2018).
Interaction effects are tested via hierarchical moderated regression analysis (Elbanna & Child, 2007) in two steps: in the first step, which represents the baseline model, only the main effects of the four governance mechanisms of interest are included. In the second step, the product terms are entered in a hierarchical manner, by adding each interaction term with the associated main effects in a separate model.
In each case, a significant increase in R 2 from the baseline model (by means of an F test, i.e., the ratio of the variance explained only by   Table A2. *Statistical significance at the 10% level. **Statistical significance at the 5% level. ***Statistical significance at the 1% level. (Continues) T A B L E 2 (Continued) 12.
the interaction term to the unexplained variance in the full model) is attributed to the interaction term included in that model.
To further examine significant interactions, we conduct simple slope tests (Aiken et al., 1991;Cohen et al., 2003) and calculate the marginal effects of one governance mechanism on acquisition propensity at different levels of the other governance mechanisms. In this way, we explore how governance mechanisms interact with each other across different levels toward acquisition propensity. Simple slopes are the sensitivity of the dependent variable on an independent variable at particular values of the moderator variable.
For the baseline specification, we employ a pooled OLS regression model, and we proceed with investigating the interactive relationships between the governance mechanisms of interest.
Accordingly, the baseline model before including the two-way interaction terms is

| Main results
We begin our analysis by reporting the results of the baseline model, which includes only the main effects of the four governance mechanisms of interest. Then, we augment the baseline specification by introducing two-way interaction terms between heterogeneous governance mechanisms. All model specifications include calendar year and industry dummies (not displayed for brevity), as it has been shown that acquisitions occur in waves and are industry-clustered (e.g., Harford, 2005;Mitchell & Mulherin, 1996). We cluster robust standard errors at the firm level in all regressions to control for heteroscedasticity and within-firm correlation of residuals (Petersen, 2009).
To investigate the interplay of governance mechanisms on acquisition propensity, as explained, we perform an interaction analysis (see Table 3). We explore all possible two-way interaction terms between the main explanatory variables. For brevity, we only present the significant pair-wise interaction terms in Models 2-6. 4 Figures 1-4 illustrate the significant interactions. We also report mean VIFs for all the estimated models in Table 3. All the mean VIF values are lower than 4, suggesting that multicollinearity is not an issue in our models.
Model 1 in Table 3  In Model 2, the interaction term of two monitoring mechanisms (NCI × IOC) is negative and significant (ΔR 2 = 0.0004, p < 0.05). The simple slope test suggests that the relationship between non-coopted independence and M&A activity is significant when institutional ownership concentration is both low (simple slope = 0.019, p < 0.10) and high (simple slope = −0.019, p < 0.10). Figure 1 displays this finding. Thus, the presence of high non-co-opted independence on its own is not sufficient to constrain acquisitiveness. But, in the presence of highly concentrated institutional holdings, these two monitoring mechanisms work together and interact as complements in curbing acquisitiveness. This finding therefore lends support to the Complementarity Hypothesis.
In Model 3, we find a positive and significant interaction between CEO delta and E-Index (ΔR 2 = 0.0006, p < 0.10). As shown in Figure 2, the simple slope test indicates that the relationship between CEO delta and M&A activity is not significant when E-Index is low (simple slope = −0.001, n.s.), but it is significant when E-Index is high (simple slope = 0.004, p < 0.05). This result therefore suggests that M&A activity increases with CEO delta, but only in the presence of a higher E-Index (i.e., weaker shareholder rights or more anti-takeover provisions and thus weaker monitoring by the takeover market). Otherwise, in the presence of a lower E-Index (i.e., stronger shareholder rights or fewer antitakeover provisions), CEO delta has a rather neutral effect on acquisitiveness (the slope is "flat"). We, therefore, conclude that there are complementary effects between CEO pay incentives-in the form of CEO delta-and E-Index (takeover market proxy) on acquisitiveness.  Year fixed effects and M&A activity is significant when E-Index is low (simple slope = 0.009, p < 0.05) but not significant when E-Index is high (simple slope = −0.005, n.s.). As shown in Figure 3, the results suggest that the presence of a low E-Index (i.e., strong shareholder rights or few anti-takeover provisions) in a firm, which has been associated with a better ability of the takeover market to exercise control over incumbent managers, increasing CEO cash pay is, in fact, more effective in encouraging the CEO to make risky strategic decisions in the form of undertaking acquisition investments. This finding supports the Substitution Hypothesis.

T A B L E 3 Interaction effects
In Model 5, the interaction between institutional ownership concentration (IOC) and E-Index is negative and significant (ΔR 2 = 0.0004, p < 0.10). As portrayed in Figure 4, simple slope test suggests that the effect of institutional ownership concentration on M&A activity is not significant when E-Index is low (simple slope = 0.050, n.s.), but it is significant when E-Index is high (simple slope = −0.061, p < 0.05). The presence of a high E-Index (i.e., weak shareholder rights or many antitakeover provisions) in a firm suggests that managers are more insulated from the disciplinary power of the takeover market and are more likely to engage in acquisitions. In this case, the concurrent presence of highly concentrated institutional shareholdings is necessary in order to constrain firm acquisitiveness. This finding supports the Substitution Hypothesis.

| Robustness tests
A potential concern with the interpretation of our main results is that  28.45% 28.46% 28.37% 28.42%

9.92%
Note: The table reports in Model 1 the main effects using firm-CEO, acquirer state, and year fixed effects in the regressions. Models 2-6 present the pair-wise interactions which were found significant in Table 2. The dependent variable is the total deal value of the acquisitions made in a given year scaled by the acquirer's total assets in the previous year. All models include the same firm and CEO characteristics as regressions of Table 3 with the exclusion of CEO gender. However, only the regression coefficients on the main governance variables of interest and the related two-way interaction terms are reported for brevity. Variable definitions are provided in Table A2. T statistics, adjusted for heteroscedasticity-consistent standard errors and clustered at the firm level, are shown in parentheses. *Statistical significance at the 10% level. **Statistical significance at the 5% level. ***Statistical significance at the 1% level. Table 4 reports the estimation results for the main and interaction effects using firm-CEO, acquirer state and year fixed effects in the regressions. The estimates of the three significant interaction terms found also in the main analysis are qualitatively similar to those reported in Table 3 (see Models 2, 3, and 5 of Table 3). However, while the coefficient on CEO cash pay × E-Index (Model 4) remains negative, it becomes statistically insignificant. One possible explanation is that a more stringent specification, which includes firm-CEO fixed effects reduces the within firm-CEO variation available for estimation.
For comparison purposes, we add all the interaction terms together in Model 6. In the full model specification, the coefficients of NCI × IOC and IOC × E-Index remain negative and significant, and the coefficient of CEO cash pay × E-Index remains insignificant as in Model 4. However, the coefficient of CEO delta × E-Index becomes insignificant.
To sum up, although we include a variety of fixed effects (firm-CEO, acquirer state, and year fixed effects) to mitigate endogeneity (reverse causality) concerns and while we control for a wide range of governance, firm, and CEO characteristics to account for observable characteristics influencing firm acquisitiveness, our results should be interpreted with caution, as we cannot completely rule out other unobservable factors that could still be driving the explored relationships.

| DISCUSSION AND CONCLUSIONS
Building on the governance bundle assumption, this paper examines the interactive effects of firm-level governance mechanisms and whether they act as substitutes or complements of each other in influencing firm acquisitiveness. Departing from the traditional view of the independent effects of corporate governance mechanisms, we contribute to the governance literature by delving into the interdependencies between corporate governance mechanisms and how these influence a firm's acquisition propensity. In this regard, our study contributes to the nascent but highly promising body of governance research which adopts a configurational perspective. This suggests that organizational outcomes depend on the effectiveness of certain combinations or "bundles" of corporate governance practices, rather than on the effectiveness of any single governance mechanism (Aguilera et al., 2008;Aguilera et al., 2012;Rediker & Seth, 1995;Ward et al., 2009).
In sum, our results mainly provide support for both the Substitu-

| Theoretical and practical implications
Our study provides valuable insights for both academics and practitioners. From a theoretical standpoint, our results reinforce the view that corporate governance mechanisms do not necessarily function as independent factors, but they operate more effectively if treated as a bundle (Desender et al., 2016;Oh et al., 2018;Rediker & Seth, 1995).
Given that a firm's governance structure consists of various mechanisms, as stated by proponents of the governance "bundles" perspective it is important to consider their interrelations in order to better explain the effects of combinations (presence/absence) of governance mechanisms on firm decisions and outcomes. It is thus possible that one mechanism is more efficient than another one in producing a certain outcome, or that one mechanism would not be sufficient in the absence of another one. For these reasons, the line of investigation that focuses on the substitutive and complementary relationships between governance mechanisms has attracted considerable scholarly attention in corporate governance research (Aguilera et al., 2012;Cuomo et al., 2016;Schiehll et al., 2014). Our results provide a better and more nuanced understanding of how the substitutive and complementary effects of firm-level governance mechanisms operate in the context of M&A, specifically in relation to acquisitiveness.
We extend the validity of the bundles of governance mechanisms approach to the context of M&A and present important implications for the design of firm-level governance mechanisms. Using the configurational lens, we show that governance mechanisms focusing on the incentives alignment (i.e., CEO cash pay and delta), external market discipline, and internal and external monitoring functions operate synergistically, and hence, any governance configuration in relation to acquisitiveness should not treat them independently (Rediker & Seth, 1995). Nevertheless, our findings also reveal the emergence of complementarities between relatively dissimilar governance practices such as board monitoring and institutional investor monitoring. We therefore extend the work of García-Castro et al. (2013) in showing the existence of complementarity between heterogeneous governance practices. From a contingency perspective, corporate governance as a system of interconnected elements will change depending on how multiple governance practices focused on effective monitoring and incentive alignment interrelate in influencing strategic decisions such as M&A propensity (Desender et al., 2016). As such, the governance system concept implies that the effectiveness of the different mechanisms cannot be considered in isolation but the interdependence between them influences acquisitiveness (Oh et al., 2018).
Moving beyond the M&A setting, it can be argued that these competing perspectives could be prevalent in other firm decisions which require intensive deliberation on behalf of the board of directors and other firm-specific governance mechanisms, such as decisions about the CEO appointment or other critical capital expenditure projects. Furthermore, our study complements and extends prior work on the interdependence of governance mechanisms by investigating their interactive effects on firm decisions and outcomes, whilst most of the previous studies in this area examined whether one governance mechanism substitutes or complements another mechanism (e.g., Hartzell & Starks, 2003;Rediker & Seth, 1995;Zajac & Westphal, 1994 anti-takeover provisions. On the other hand, if a firm with low institutional ownership aims to increase acquisitiveness, it will seek to control co-opted board memberships or alternatively limit shareholder rights and increase anti-takeover provisions. Meanwhile a firm with high institutional ownership can opt to increase the representation of co-opted members on the board to achieve a similar outcome. Finally, increasing CEO incentives such as CEO delta and cash pay can boost the acquisitiveness in the presence of high and low levels of antitakeover provisions respectively. Taken together, our findings imply that firms should consider different governance configurations for different levels of acquisition propensity, in line with the notion of "equifinality," whereby alternative combinations of governance mechanisms can lead to similar firm outcomes (Gresov & Drazin, 1997;Rediker & Seth, 1995). For policymakers, these results challenge universalistic policy prescriptions and support the notion that in the design of governance frameworks, different, and equally valid, routes can allow firms to reach the same end result.

| Limitations and future research
As customary, it is necessary to acknowledge certain limitations of our study and consider avenues for future research. Second, our study used only archival data. Arguably, we have employed more refined proxies for our board characteristics than previously used "noisy" measures (e.g., non-co-opted board independence vs. conventional measure of board independence-proportion of independent directors). Nevertheless, our measures still prevent us from gaining an in-depth understanding of the underlying team-based and decision-making processes of boards of directors. Hence, a fruitful avenue for enquiry would be to delve into the inner workings of boardrooms by collecting primary data through questionnaire surveys and interviews of board members in order to better capture the effects of board monitoring on acquisition decisions.
Third, we acknowledge some endogeneity concerns. In a similar context to our study, prior research shows that CEO compensation is higher when pursuing M&A that significantly increase firm size (e.g., Chen et al., 2017;Grinstein & Hribar, 2004;Harford & Li, 2007).
Moreover, prior research has revealed that institutional investors are more likely to invest in large firms (e.g., Gompers & Metrick, 2001;Sias & Starks, 1997). Thus, an increase in firm size via M&A may attract a higher level of institutional ownership in that firm. In general, the reverse causality issue implies that we could observe different governance structures for more acquisitive firms. A widely used approach to address reverse causality is to find an instrumental variable, which satisfies two challenging conditions, namely, the "relevance" and "exogeneity" conditions (Larcker & Rusticus, 2010).
However, in practice, it is very difficult to find valid strictly exogenous instruments (Wintoki et al., 2012)   3.12% Note: The table reports all pair-wise interactions which were found non-significant in Table 3, using year and industry fixed effects in the regressions. The dependent variable is the total deal value of the acquisitions made in a given year scaled by the acquirer's total assets in the previous year ×100. All models include the same firm and CEO control variables as in the regressions of Table 3. For brevity we report only the regression coefficients on the main governance variables of interest and the related two-way interaction terms. Variable definitions are provided in Table A2. T statistics, adjusted for heteroscedasticityconsistent standard errors and clustered at the firm level, are shown in parentheses. *Statistical significance at the 10% level. **Statistical significance at the 5% level. ***Statistical significance at the 1% level.   3.13% Note: The table reports all pair-wise interactions which were found non-significant in Table 3, using year and industry fixed effects in the regressions. The dependent variable is the total deal value of the acquisitions made in a given year scaled by the acquirer's total assets in the previous year ×100. All models include the same firm and CEO control variables as in the regressions of Table 3. For brevity we report only the regression coefficients on the main governance variables of interest and the related two-way interaction terms. Variable definitions are provided in Table A2. T statistics, adjusted for heteroscedasticityconsistent standard errors and clustered at the firm level, are shown in parentheses. *Statistical significance at the 10% level. **Statistical significance at the 5% level. ***Statistical significance at the 1% level. The percentage of the sum of shareholdings held by the five largest institutional investors to the total shares outstanding at the fiscal year-end.
Thomson Financial 13F, CRSP E-Index The Entrenchment Index of Bebchuk et al. (2009) based on six antitakeover provisions (staggered boards, limits on amending the charter, limits on amending bylaws, supermajority requirements to approve a merger, poison pills, and golden parachutes). Each firm is assigned a score, from 0 to 6, based on the number of anti-takeover provisions that the firm has in the given year.

Panel C: Firm and industry characteristics
Firm size The natural logarithm of the book value of total assets in the fiscal year.

Book leverage
The book value of total debt (long-term plus short-term debt) divided by the book value of total assets at the fiscal year-end.

Sales growth
The ratio of the sales in the current fiscal year to the sales in the previous fiscal year minus one.

Compustat
Market-to-book ratio The ratio of the market value of total assets to the book value of total assets at the fiscal year-end, where the market value of assets is defined as the book value of assets plus the market value of common stock minus the book value of common stock.

Compustat
Cash flows Operating income before depreciation minus income taxes minus interest expenses minus dividends (common and preferred), divided by the book value of total assets at the fiscal year-end.

Compustat
Cash holdings Cash and short-term investments, scaled by the book value of total assets at the fiscal year-end.
Compustat ROA Net income divided by the book value of total assets at the fiscal year-end. ExecuComp CEO overconfidence A dummy variable which takes the value of one if the CEO is identified as overconfident, and zero otherwise. CEOs are overconfident if they delay the exercise of vested options which are at least 67% in the money. We follow Campbell et al. (2011) in order to calculate the average moneyness of the CEO's option for each sample year. First, for each CEO-year, the average realizable value per option is calculated by dividing the total realizable value of options by the number of options held by the CEO. Second, the strike price is calculated by subtracting the average realizable value per option from the stock price at the end of the fiscal year. The average percent moneyness of the options is computed by dividing the stock price at the fiscal yearend by the estimated strike price minus one.

CEO ownership
The shares held by the CEO, excluding options, divided by the number of shares outstanding at the fiscal year-end.